Carve-outs are back on the agenda as large groups simplify their portfolios. For buyers, they offer good businesses at sensible prices. They also offer a particular kind of risk: buying a business that cannot operate on its own on day one.

The transitional services agreement (TSA) is where that risk is managed, or not.

Start with an operational map, not a contract template. Before anyone drafts a TSA, the buyer needs to know which systems, data, people and contracts the carved-out business actually relies on. In our experience, IT, finance systems and shared software licences are where the surprises are.

Price and duration should follow the separation plan. A TSA that is too short forces a rushed migration. One that is too long leaves the buyer dependent on a seller with every incentive to move on. Extension rights, with clear pricing, give both sides confidence.

IP needs its own analysis. Shared IP, shared code and group-wide licences rarely divide neatly. Buyers should know what they will own outright, what they will license back and what they will have to replace.

Data travels with risk. Moving customer and employee data from the seller's systems to the buyer's raises privacy and security issues, particularly when the data crosses borders. Those issues should be planned into the migration, not discovered during it.

People are part of the perimeter. Employees who work across the carved-out business and the rest of the group need to be identified early. Transfer mechanics differ by country: in the UK, TUPE may move employees automatically, while in the US offers of employment are usually required. Key individuals the buyer cannot do without should be identified and retained.

Reverse TSAs are common. The seller may also need services from the business it is selling, for example where the carved-out unit provided shared functions to the wider group. Those reverse services need the same care, and they can be useful leverage in the negotiation.

Governance matters more than drafting. The best TSAs have named service managers, regular review meetings and a quick way to escalate problems.

A carve-out is a separation project with a purchase agreement attached. The TSA is how that project gets delivered.

To discuss a carve-out, contact Arjun Mehta in San Francisco.