The buyer is requiring a six-month Transition Services Agreement for our administrative and IT functions post-close, but we plan to dissolve our corporate back office immediately. How do we price and structure a TSA to avoid operating a cost center for the buyer?

Question

Tyler Smith · Accepted Answer

A Transition Services Agreement (TSA) can quickly turn into a financial and operational nightmare if you do not define its parameters aggressively during the purchase agreement negotiations. Buyers often request TSAs to maintain back-office, payroll, accounting, or IT continuity while they integrate systems, but sellers frequently underprice the real labor and overhead required to deliver those services.

To ensure a TSA does not become a distraction or an uncompensated liability, structure the agreement around three principles:
- Price every service at fully burdened cost plus a twenty-five to thirty percent administrative markup. If the buyer needs your personnel to manage their operations, they must pay premium rates that compensate for retained overhead.
- Implement escalating penalty pricing that increases the monthly fee by twenty to fifty percent after ninety days. This incentivizes the buyer to transition systems quickly rather than relying on your organization indefinitely.
- Define precise scopes of work, weekly hour limits, and clear service-level baselines that mirror historical performance, while explicitly disclaiming liability for third-party software outages or business disruptions.

Your core leadership team needs to execute your next vision or exit cleanly, not operate an outsourced shared-services firm for an acquirer. Ensure the TSA gives your organization the unilateral right to terminate services if the buyer fails to pay on time, and keep the term as short as possible.