Key Takeaways

  • Cooley partner Danielle Fortier marks over-relying on Transition Services Agreements (TSAs) as the primary operational trap in corporate carve-outs, where deal teams treat transition schedules as catch-all buckets for diligence gaps.
  • Operational friction surfaces roughly six months post-close, when buyers discover that seller teams who cashed out have little incentive to prioritize carve-out support tickets.
  • Long-tail TSA entanglements also drain seller resources, leaving parent company finance desks answering buyer inquiries three times a day twelve months after deal completion.
  • Structural separation requires scoping vendor entanglements pre-LOI, setting TSA duration and pricing early, and deploying reverse TSAs when shared staff must wrap up legacy seller obligations.

The TSA as a Diligence Catch-All

During deal negotiations, transaction teams face heavy pressure to hit closing deadlines. When diligence reveals that a core software license, shared enterprise tool, or vendor contract will not transfer cleanly with the carved-out unit, teams choose the path of least resistance. They append the service to the TSA schedule. Danielle Fortier identifies this habit as the single largest operational mistake in carve-out transactions: “The biggest mistake I would say is over relying on the TSA.”

The mechanism feels painless during legal drafting. As Fortier observes, “everyone's trying really hard to get everything done, get this thing over the finish line, and, you know, we're going through diligence and we're identifying these gaps where it's something that's not going to come over with the business. I think the default is always like okay well let's put that in the TSA right and so you end up with like a lot of stuff in the TSA.”

Papering over operational gaps creates severe friction once wire transfers clear. Sellers exist to run their own core businesses, not to operate as an outsourced support bureau for a unit they just sold. Six months after closing, the carve-out discovers the reality of being an unprioritized customer. As Fortier describes it: “you're six months into your TSA and as a buyer you're like I still have to go to the seller every time I need something on this and this team isn't as responsive as I'd like it to be.”

Retaining Operational Control from Day One

Protecting carve-out performance requires sponsors to build standalone capabilities before closing rather than borrowing them from the corporate parent. Shared systems and vendor contracts derail timelines far more frequently than headline asset transfers. Software carve-outs introduce additional friction around shared source code and developer tools, especially as artificial intelligence tools complicate intellectual property boundaries across shared codebases.

Fortier argues that buyers must take ownership of the replacement architecture immediately: “ideally if you can as a buyer if you can stand up stand it up on your own or find some way to like replace a vendor or something like fill the gap in a way that you are still in the driver's seat. That's often better.”

Prolonged dependencies penalize sellers just as heavily. A parent company that accepts a broad TSA schedule turns its own employees into permanent service providers. Fortier points out the administrative hangover: “Sellers, that's not a seller's business. They don't want to be in the business of providing these services. And so you don't want to be 12 months after a closing and your finance team is still getting a call three times a day from the buyer about how do I do this where's this.”

When shared staff must remain involved, Fortier points toward reverse TSAs as the cleaner alternative. Instead of the parent company running the carve-out's operations, the carved-out entity employs the talent, while the parent contracts them back on defined scopes to finish legacy corporate work.

Why It Matters

Carve-out returns hinge on the speed of operational separation. When private equity buyers treat TSAs as operational bridges rather than short-term backstops, value creation plans stall under sluggish seller ticketing queues and administrative drag. Sophisticated sponsors scope vendor entanglements pre-LOI and establish aggressive pricing escalators to force clean breaks at closing.