How companies can make transition services work in M&As

Every deal has a closing date, but a business does not necessarily become operationally independent on Day 1. In many acquisitions, divestments and demergers, the buyer and seller continue to share systems, processes, data, contracts or specialist capabilities for some period after closing. A Transition Services Agreement (TSA) provides a structured way to manage these dependencies while the business moves towards independence.

This is increasingly relevant in today’s M&A environment. India’s deal value rose 18% to $123.8 billion in 2025, even as deal volumes declined 3%. Transactions above $500 million accounted for about 60% of Indian M&A deal value since 2024. The market is therefore seeing fewer, larger and more selective transactions. In such deals, getting the post-close operating model right can be as important as completing the transaction itself. 

Recent deals, such as the demerger of ITC Hotels from ITC Ltd, Hindustan Unilever’s demerger of Kwality Wall's India for the ice cream business, Tata Motors commercial vehicle business, Vedanta demerger and ITC’s acquisition of Century Pulp & Paper, are all deals where TSA has become the most critical element for minimising business disruption, preserving value and giving the demerged business enough time to stand on its two feet on a standalone basis.

TSAs have become a common feature of complex transactions. Gartner research found that 82% of companies use TSAs, with IT and finance among the most frequently covered functions. A typical TSA duration is 17 months, increasing to around 19 months for supply-chain services. More than half of the TSAs studied also involved third-party vendors. As many as 42% of dealmakers say TSA duration and pricing are a major separation problem.

A TSA is not simply a contingency arrangement. It can provide the time and structure needed to separate complex operations without compromising business continuity. In a carve-out, for example, the business may still rely on the seller’s ERP, finance processes, HR systems, procurement arrangements or technology infrastructure. Separating these too quickly can create disruption, while keeping them in place for too long can delay independence and value realisation.

The challenge is to find the right balance. Too little support can expose the business to avoidable disruption; too much can create prolonged reliance on the seller, increase costs and make accountability less clear. The answer is therefore not simply a longer TSA, but a more deliberate one.

Consider a complex demerger involving a workforce management and staffing business. The carved-out business continued to use the seller’s ERP platform after closing because systems, data, workflows and reporting were closely connected. Creating a standalone environment required data migration, new interfaces, process configuration and end-to-end testing. A TSA provided the bridge while these activities were completed, allowing the business to continue operating while the separation progressed.

Similar dependencies can arise outside technology. In a hotel demerger, for instance, shared brands, reservation platforms, loyalty programmes, procurement networks and corporate functions can make an immediate separation difficult. A phased approach can allow essential services and brand-related dependencies to continue under defined arrangements while each business builds its own capabilities.

There can also be two-way dependencies. A seller may need access to information held by the buyer to complete tax filings, statutory audits or regulatory responses relating to the pre-closing period. In a manufacturing transaction, for example, operational, financial and employee records required for post-closing compliance may sit with the business transferred to the buyer. A clear information-sharing mechanism can help both parties meet their continuing obligations.

These examples point to an important shift in how TSAs should be approached. The objective should not be to put as many services as possible into the TSA. Instead, each service should address a specific dependency and have a clear route to exit.

That means asking a different question: not “What does the business need to be supported by?” but “What is preventing the business from being independent, and what needs to happen to remove that dependency?”

Planning should begin early. Before closing, buyers and sellers can identify critical dependencies, assess which services genuinely need transitional support, define responsibilities and agree on realistic exit timelines. This becomes particularly important in larger transactions, where multiple functions may have different separation requirements, and dependencies may not disappear at the same pace.

The current deal environment makes this discipline even more relevant. Our analysis describes India’s market as increasingly focused on execution certainty, with operational diligence becoming more forward-looking and closely linked to value creation. As businesses acquire capabilities in these areas, separating technology, data and operating processes can become a material part of the post-close agenda.

For organisations, this means TSA planning should be treated as part of the broader separation and value-realisation plan, not as an administrative exercise after the deal is signed.

A practical TSA should give every service a clear purpose, owner, governance structure and exit milestone. It should also distinguish between temporary support and activities that require a permanent capability to be built by the buyer. Progress can then be measured not only through service continuity or adherence to service levels, but also through the removal of dependencies, completion of separation milestones and the business’s progress towards standalone operations.

The goal is ultimately straightforward: preserve continuity where it is needed, while creating a clear path to independence.

As M&A transactions become larger, more selective and increasingly focused on operational value, a well-designed TSA can help bridge the gap between closing and independence. It gives organisations room to manage complexity without losing sight of the end goal: a business that can operate on its own and realise the value envisioned at the time of the transaction.

Source : Vccircle