Realistic TSA Duration in Mid-Market Carveouts

While every carveout is unique and there is no universal TSA duration that applies to all deals, the planning process must be realistic and include the right amount of slack. 

In my experience with mid-market carveouts, the viable end date for Transition Services is often months later than what was agreed to initially. Buyers with little or no carveout experience and no advisors will frequently need to renegotiate the end date of some or all TSA services. In the worst case, they are left out in the cold while customers and employees lose trust in management.

Here are some areas where attention to duration and the need for slack are especially important:

1. Establishing a Standalone IT Function 

Establishing a standalone IT program (mission-critical applications, service providers, people, and processes) reveals hidden interdependencies with the seller’s shared services. These dependencies must be untangled and re-engineered, a process that can add weeks or months to the project plan.

2. Data Migration Leadtime 

Moving data from a parent environment to a new platform involves more than just a transfer. Cleansing, mapping, and validating data (especially when documentation is incomplete) frequently requires several cycles of testing before a production go-live is feasible.

3. Testing and User Training

Successful separation often requires core business apps like ERP and HRIS/Payroll to be spun up from scratch. These systems are usually not what transitioning employees are used to. This necessitates testing and training as with any major systems migration. 

4. Contractual Lead Times 

Negotiating new vendor contracts and establishing independent licensing agreements can take as much time as the technical implementation. Many buyers underestimate the time required for legal reviews and the risk of vendors using the transition as leverage for price increases.

The TSA Negotiation Framework

To avoid TSA penalties and holdover fees, the timeline must be established through a rigorous assessment of the operational requirements rather than an arbitrary calendar date. This is why involving advisors experienced in carveouts is critical during the negotiation phase.

Our approach involves defining the viable TSA termination date on a service by service basis by accounting for the slack required for operational stabilization. Rather than attempting to fit a separation plan into a pre-conceived expiration date, we determine what that date needs to be based on the unique circumstances of the deal. This approach protects management's reputation with both customers and employees while avoiding messy re-negotiation of the original terms.