ProcessMergers & Acquisitions
Carve-out IT separation: from entanglement map to TSA exit
A carve-out separates a business that was never designed to stand alone. Its applications, infrastructure, data, licenses and people are tangled up with the rest of the seller's group. Separation works when both sides agree what is entangled, choose an approach system by system, define what must work on Day One, and write a transition services agreement with a planned end. This page sets out that sequence and where it usually goes wrong.
On this page
- Seller and buyer want different things from the same separation
- The separation sequence from signing to TSA exit
- What the entanglement inventory has to cover
- Clone-and-go, logical separation, extract-and-migrate or rebuild
- Running the separation programme
- Scoping decisions that make or break the TSA
- Licenses, contracts, data and people
- Why TSAs overrun and how to exit on time
- A hypothetical division leaves a shared ERP
- Questions and answers
- Sources
Seller and buyer want different things from the same separation
The seller wants to protect the business it keeps: minimal disruption to shared systems, a short support period after closing, and no costs left behind once the sold unit has gone. The buyer wants continuity on Day One, freedom to choose its own target platforms, and a clear view of what standalone operation will cost.
Both sides gain from a shared, early plan. For the seller, a credible separation plan supports the price and shortens the transition period. For the buyer, it turns open-ended dependence on the seller into a dated list of services with exits. ColdAI's carve-out work focuses on clean architecture boundaries and sustainable standalone operations1, and the method below applies whichever side you are on.
The separation sequence from signing to TSA exit
- Entanglement inventory
Everything the sold business uses that it does not own outright.
- Approach per system
Clone, logically separate, extract and migrate, or rebuild.
- Day One design
The minimum that must work at completion, and who provides it.
- TSA schedules
Services the seller keeps providing, with levels, prices and end dates.
- Migration waves
Moves to the buyer's platforms in dependency order, each with rollback.
- TSA exit
Services switched off one by one and stranded costs resolved.
What the entanglement inventory has to cover
List every shared dependency before debating approaches. Gaps found after signing become TSA services nobody priced.
Clone-and-go, logical separation, extract-and-migrate or rebuild
Most carve-outs use several of these, chosen system by system according to how entangled each one is and where the buyer wants to end up.
| Approach | How it works | Works best when | Main risk |
|---|---|---|---|
| Clone-and-go | Copy the shared system and its configuration, then purge the seller's data from the copy | Speed matters and the buyer has no target platform yet | Purging is incomplete, and the clone needs licenses the buyer may not hold |
| Logical separation | Keep one instance but partition access and data by company under a TSA | The buyer will migrate soon and a short TSA is acceptable | Data leakage between companies and a TSA that never ends |
| Extract-and-migrate | Move the sold unit's data and processes into the buyer's existing platform | The buyer already runs a suitable platform | Mapping effort and a hard cutover on a fixed date |
| Rebuild | Stand up new systems for the carved-out business | The legacy system is near end of life or heavily customized | Longest timeline and the highest dependence on TSA services meanwhile |
Choose by system, not by programme. A common pattern is clone-and-go for the ERP, extract-and-migrate for email and identity, and rebuild for a reporting platform.
Running the separation programme
Build and agree the inventory
Walk every dependency with both sides' system owners and record it in one register with a proposed approach.
Define the Day One minimum
Agree what must work at completion: entity bank accounts and payroll, access and identity, email and domains, financial reporting and close, customer-facing systems and security monitoring.
Draft the TSA schedules
Turn every Day One dependency the buyer cannot yet provide for itself into a service schedule, with service levels usually set at the standard delivered before the sale.
Price the services and set terms
Agree cost-based pricing, the base term, extension options with notice periods, and price steps after the base term to keep both sides moving.
Plan migration waves
Order moves by dependency, test each one with real data, and agree rollback criteria before each cutover.
Exit service by service
Switch off each TSA service once the replacement is proven, confirm data has been returned or deleted, and resolve the seller's stranded costs.
Scoping decisions that make or break the TSA
- If
The buyer may need a service for longer than the base term.
ThenAgree an extension option with a notice period and stepped pricing now, rather than negotiating under pressure later.
Extensions requested late are priced by whichever party needs them less.
- If
A service depends on a license the seller cannot extend to a company outside its group.
ThenHave the buyer procure its own license before Day One, or make the vendor's consent a closing deliverable.
Running a non-affiliate on the parent's license can breach the license agreement.
- If
The seller will process the buyer's personal data while providing a service.
ThenPut a data processing agreement in place that meets GDPR Article 282.
In that arrangement the seller usually acts as the buyer's processor.
- If
The sold business also provides services the seller still needs.
ThenWrite a reverse TSA with the same discipline on scope, price and exit.
Shared plants, labs or support teams can flow in both directions.
Licenses, contracts, data and people
Software licenses are often the slowest item. Enterprise agreements commonly allow use by affiliates only, so the sold business loses its entitlement when it leaves the group, and assignment usually needs the vendor's consent. Request consents early and budget for new licenses where consent will be refused or priced.
Data separation is harder than infrastructure separation. Customer, supplier and product records may belong to both businesses, and reports or analytics models may mix them. Decide record by record who owns what, cleanse clones before handover, and document what each side deletes. In the EU, staff who mainly work for the transferred business may move with it under the Acquired Rights Directive (Directive 2001/23/EC) and its national implementations, such as TUPE in the UK3, so plan knowledge transfer with HR and counsel.
Why TSAs overrun and how to exit on time
The TSA becomes permanent
Early signalExtension requests arrive before any migration has been tested.
MitigationTie each service to a migration milestone and review progress monthly at a joint governance meeting.
The seller is left with stranded costs
Early signalLicenses, data center space and contracts sized for the combined group remain after exit.
MitigationIdentify stranded costs during scoping and plan contract reductions in step with each service exit.
Service-level disputes
Early signalThe buyer expects improvements while the seller delivers the pre-sale standard.
MitigationDefine the standard as historical service levels with evidence, and handle improvements through change control.
The buyer cannot staff its own operations in time
Early signalNo hiring plan for the roles the TSA currently covers.
MitigationStart recruitment or a managed service arrangement before closing for the functions being exited first.
Questions and answers
How long should a transition services agreement last?
As long as the slowest migration realistically needs, plus a margin, and no longer. Set the base term per service rather than for the whole agreement, add extension options with notice periods and stepped pricing, and link each service's end to a migration milestone. A single term for every service usually leaves easy services running too long and hard ones too short.
How are TSA services usually priced?
Most TSAs price services at cost, sometimes with a modest markup, because the seller is not trying to profit from them. Pricing commonly steps up after the base term to encourage exit. Agree how costs are calculated, how third-party costs pass through and how changes are charged, so invoices do not become a dispute.
Who owns the separation plan, seller or buyer?
Each side owns its own plan, but the entanglement register, Day One requirements and TSA schedules should be shared documents. The seller understands the systems; the buyer understands its target state. Joint governance with named separation leads on both sides keeps decisions moving after closing.
Can data be separated by simply cloning the database?
Cloning is the quickest start, but the clone still contains the other business's records. Purge or anonymize data that does not belong to the buyer before handover, document what was removed, and check reports, backups and analytics copies too. Commingled personal data raises data protection obligations for both sides.
Sources
- Mergers & Acquisitions: Carve-Out & Divestiture offering — ColdAI
- Regulation (EU) 2016/679 (General Data Protection Regulation), Article 28 on processors — EUR-Lex · checked 10 October 2026
- Council Directive 2001/23/EC on safeguarding employees' rights in the event of transfers of undertakings — EUR-Lex · checked 10 October 2026