Differentiating Separation from Transition in Middle-Market TSAs

A buyer in a carve-out transaction should pay for temporary services that keep the lights on, not for the seller to complete separation work it has already agreed to perform. 

That distinction can get blurred during a carve-out. 

▪ Separation activities

Separation activities are the one-time tasks required to disentangle the target from the seller’s technology environment. 

Depending on the transaction, that may include separating networks and software environments, extracting and transferring data, removing shared access, migrating accounts, and unwinding dependencies on the seller’s systems. 

Responsibility for that work must be explicitly assigned in the transaction documents and separation plan. If the seller has agreed to deliver a separated capability, the same work should not quietly reappear as a billable service under the TSA. 

▪ Transition services

Transition Services are different. 

They keep the target operating while the PE firm and portfolio company establish independent systems, vendor relationships, licenses, and support capabilities. 

Examples may include temporary access to the seller’s ERP, network, service desk, cybersecurity operations, or shared business applications. 

Those services should have defined owners, service levels, pricing, exit criteria, and durations. (Avoid specific service termination dates as they often don’t get updated when the deal close date gets pushed.) 

Reconciling the Separation Plan and TSA Schedules

During IT diligence, we reconcile the dependency map, separation plan, TSA schedules, one-time costs, and exit plan. For each item, we ask: 

Is the seller removing an existing dependency or providing an ongoing service while the buyer replaces it? 

That answer determines who performs the work, who pays for it, and whether the expense belongs in the seller’s separation budget or the TSA. 

When the distinction is unclear, the PE firm can inherit duplicate costs, missing responsibilities, and a TSA it cannot exit on schedule.