The buyer is demanding that our key operational staff remain available under a low-cost Transition Services Agreement for six months post-close. How do we price this agreement to protect our team and our exit proceeds?

Question

Tyler Smith · Accepted Answer

Transition Services Agreements are common, but buyers often try to use them as cheap labor sources, which can burn out your team and distract them from their new roles. To structure a successful TSA, you must price the services to reflect their true operational value.

Start by evaluating your team members using the GWC™ framework. Ensure that the individuals assigned to the TSA actually want the role, understand the requirements, and have the capacity to deliver. If they are stretched too thin, the transition will fail, which could trigger indemnity claims from the buyer.

Price the TSA at a premium over your historical costs. Do not simply charge the buyer for the employee's base salary and benefits. You must include an allocation for overhead, management time, and a profit margin, typically thirty to fifty percent above direct labor costs. This ensures your business is compensated for the operational disruption.

Furthermore, establish clear boundaries in the agreement. Define the specific tasks, the maximum hours per week, and the exact deliverables required. If the buyer exceeds these limits, the agreement should trigger automatic overtime rates. This protects your team and incentivizes the buyer to complete the integration quickly.