Document type: Article Practice area: Corporate — Mergers and Acquisitions Jurisdiction: United States (federal and state) Last reviewed: 5 September 2026

The premise that makes carve-outs different

In a whole-company acquisition, the buyer purchases an organism that already functions. It has its own bank accounts, its own ERP instance, its own insurance, its own employees on its own payroll, its own contracts in its own name, and financial statements an auditor has signed.

A carve-out has none of that. The target is a product line, a division, a set of facilities, a customer book — something that has always run on the parent's infrastructure, its people, its contracts, and its balance sheet. There is no legal entity, no separate general ledger, no separate IT stack, and no separate set of anything.

The transaction therefore has two components that a whole-company deal does not. First, the seller must manufacture a business: define its perimeter, assemble its assets, allocate its liabilities, transfer its employees, and produce financial statements describing something that never existed as an accounting entity. Second, because that manufacturing cannot be completed by closing, the parties must agree that the seller will keep operating parts of the business for the buyer for a period — the transition services agreement.

Almost every problem in a carve-out traces to one of those two facts.

Defining the perimeter

The first and most consequential drafting task is saying exactly what is being sold, and the answer is rarely obvious.

The approaches.

Entity-based. Where the business happens to sit in dedicated legal entities, sell the equity. Clean where available; rarely available.

Asset-based. Transfer scheduled assets and assume scheduled liabilities. Precise, laborious, and it requires the schedules to be right — anything omitted stays with the seller, and the buyer discovers the omission when something stops working.

Reorganization-then-sale. The seller pre-closes a reorganization moving the business into newly formed entities, then sells the equity of those entities. The common structure for large carve-outs, because it converts a complicated asset transfer into a simple equity sale — at the cost of a pre-closing reorganization that has its own tax, employment, regulatory, and consent consequences in every jurisdiction touched.

The "primarily related to" problem. Schedules are often built around a standard: assets "primarily used in" or "primarily related to" the business transfer. The standard is a source of endless post-closing dispute, because shared assets are neither primarily one thing nor the other. The better practice is to schedule assets by name and use the standard only as a residual sweep — and to write a mechanism (a wrong-pockets provision) for assets discovered on the wrong side afterward.

Liabilities are the mirror image and are frequently under-negotiated. Which litigation, which environmental exposure, which product liability for units sold before closing, which employee claims, which tax periods. The default that "liabilities of the business" follow the business is not self-executing, and the buyer wants a defined list, not a standard.

Shared contracts, and the anti-assignment problem

A shared contract serves both the retained business and the divested one. A master supply agreement covering four divisions. An enterprise software license covering all users. A distribution agreement covering the whole product portfolio. A facility lease housing two businesses.

There are only four ways to handle one, and each has costs.

Assign in whole, if the contract is predominantly the divested business's — with the counterparty's consent, and with a reverse arrangement so the seller keeps whatever it still needs.

Partially assign or split, creating two contracts from one. Requires the counterparty's active cooperation, which the counterparty has no obligation to give and every incentive to price.

Retain and pass through, with the seller continuing to perform and passing the benefit to the buyer under the TSA or a back-to-back arrangement. Workable, and it means the buyer's rights depend on the seller's continued performance and on the arrangement not breaching the underlying contract.

Terminate and replace, with the buyer negotiating its own contract. Cleanest and often the most expensive, because the buyer buys at its own smaller volume rather than the parent's.

And the consent problem sits underneath all of it. Most commercial contracts prohibit assignment without consent. Counterparties know a carve-out is happening, know the deal has a timetable, and know that a required consent is a repricing opportunity. Consent diligence should start before signing, and the purchase agreement should allocate the cost of consents, provide for alternative arrangements where consent is not obtained, and — importantly — say what happens if a material consent is never obtained.

Two structural points often missed.

A change of control provision can be triggered by an equity sale even where no assignment occurs. In a reorganization-then-sale structure, the contracts stay with the entity and the entity changes hands. Whether that triggers a consent requirement depends on the clause's wording, and clauses vary enormously.

Some rights do not transfer even with a general assignment. Intellectual property licenses are the leading example, discussed next.

Intellectual property: the part that surprises people

Assignment formalities. Patent assignments are governed by 35 U.S.C. § 261, which requires a writing and provides for recordation, with priority consequences for a subsequent bona fide purchaser without notice. Trademark assignments under 15 U.S.C. § 1060 must include the goodwill of the business symbolized by the mark — an assignment in gross is invalid. Copyright transfers require a signed writing under 17 U.S.C. § 204. All three are easy to get right and are routinely gotten wrong in a schedule assembled under time pressure.

The license non-assignability rule is the real problem. Federal common law treats patent licenses as personal and non-assignable absent express permission, a principle stated in PPG Industries, Inc. v. Guardian Industries Corp., 597 F.2d 1090 (6th Cir. 1979) — the licensee cannot transfer the license without the licensor's consent, because the licensor chose its licensee.

And the rule reaches transactions that are not assignments at all. Cincom Systems, Inc. v. Novelis Corp., 581 F.3d 431 (6th Cir. 2009) held that a software license that prohibited transfer without consent was breached by an internal corporate reorganization in which the licensee merged into an affiliate — even though the same business, at the same site, used the same software throughout. The license did not survive the reorganization because federal common law's non-assignability default was not displaced by the merger's operation of law.

Trademark licenses follow similar reasoning. In re XMH Corp., 647 F.3d 690 (7th Cir. 2011) treated a trademark license as presumptively non-assignable by the licensee, reasoning from the licensor's interest in controlling the quality of goods bearing its mark.

Why this matters enormously in a carve-out. A reorganization-then-sale structure moves the business through one or more internal transfers before it ever reaches the buyer. Every inbound license the business depends on may be breached by that internal step, without any external assignment having occurred. Software, technology, brand, and patent licenses all need to be identified, reviewed for transfer language, and consented to or replaced.

Shared and retained intellectual property. The parent's technology used by the divested business, and vice versa. Handled through cross-licenses: the buyer gets a license to retained IP it needs, and the seller gets a license back to transferred IP it still uses. Negotiate field-of-use limits, exclusivity, sublicensing, improvements, term, and — where the businesses will compete — non-compete overlays.

Brand transition. The divested business almost always uses the parent's name somewhere: on products, packaging, buildings, uniforms, domains, and in the entity names of foreign subsidiaries. A transitional trademark license permits continued use for a defined period, with quality control provisions (necessary to avoid naked licensing), a rebranding plan with milestones, and a hard sunset.

Employees

The threshold question is whether employment transfers automatically. In the United States, generally not: employees of an asset seller are terminated and rehired by the buyer, which triggers a cascade of consequences. In much of Europe and in several other jurisdictions, automatic transfer regimes move employees with the business by operation of law, together with their terms and their accrued rights — a completely different legal architecture in the same transaction.

In the U.S. asset structure, the mechanics.

Identification. Who is "in" the business? Dedicated employees are easy. Shared services personnel, matrixed managers, and people who spend forty percent of their time on the business are not. Every carve-out has a negotiation about a list of names.

Offers. The buyer makes offers on stated terms — comparable base, comparable bonus opportunity, credit for prior service for vesting and benefits eligibility, and severance protection for a period.

WARN. The Worker Adjustment and Retraining Notification Act, 29 U.S.C. § 2101, requires notice for mass layoffs and plant closings. In an asset sale, the statutory framework addresses which party bears responsibility around the closing date, and state "mini-WARN" statutes are often broader. Analyze this before the employee list is final, because whether a group is "terminated" can depend on how many receive offers.

Benefits. Health continuation obligations under 29 U.S.C. § 1161 attach to the seller's plans for those not hired, with the allocation of responsibility negotiated. Qualified plan transfers — spinning off a portion of a 401(k) plan — involve the plan asset and liability transfer rules and the controlled group definitions of 26 U.S.C. § 414. Non-qualified deferred compensation, equity awards, and retention arrangements each need their own treatment.

Retention. The people who make the business work will be approached by recruiters the day the deal is announced. Retention pools funded by the seller, the buyer, or both, with agreed allocation and clawback terms.

Employees are consistently the item that determines whether a carve-out succeeds operationally, and consistently the item negotiated last.

The transition services agreement

The TSA exists because separation cannot finish by closing. It is a services contract between two parties who have just stopped being one, one of whom now has no commercial interest in performing well.

What is typically covered. Information technology — ERP, email, networks, applications, hosting, help desk, cybersecurity. Finance — accounts payable and receivable, general ledger, treasury, tax compliance, payroll processing. Human resources — benefits administration, HRIS. Procurement. Facilities. Logistics and warehousing. Regulatory support. Customer support. Sometimes manufacturing itself, under a separate supply or toll manufacturing agreement.

The five terms that matter.

Scope. A schedule per service, describing what is provided, by whom, at what volume, with what dependencies. Vague scope is the single largest source of TSA disputes, and the cure is a service description written by the people who actually perform the service rather than by lawyers summarizing an org chart.

Price. Cost-plus a stated margin, a fixed monthly fee, or a pass-through of third-party costs. Buyers press for cost with no margin; sellers resist providing services below cost. Escalation over time is common and deliberate — pricing that rises after month six or twelve creates an incentive to exit.

Duration. An initial term per service with extension rights. Six to twenty-four months is the usual range, with IT the longest. Extensions typically require notice and carry a price premium, and there should be an outside date after which no extension is available.

Service levels. The right benchmark is the level at which the seller provided the service internally in the twelve months before closing — not a market SLA the seller never met for itself. Remedies are usually limited to service credits, and the liability cap is typically a multiple of fees paid, which means a TSA failure that costs the buyer millions may yield a remedy measured in thousands.

Exit. Termination for convenience by the buyer on notice, with no or limited termination fees; a migration plan with milestones and cooperation obligations; and data extraction in a usable format. The exit provisions are what the buyer will care about most and negotiate least.

The reverse TSA. The buyer provides services to the seller — because the divested business ran something the parent needs. Manufacturing capacity at a transferred plant. A shared laboratory. A regional service organization. Reverse TSAs are routinely forgotten until late, and they are leverage for the buyer that nobody planned.

A critical structural point. The TSA is not a mechanism for the seller to run the business. It should provide defined services with defined interfaces, not general management. And the seller's people performing them will be reassigned, reorganized, or gone within a year — which is why exit deadlines matter more than service levels.

Carve-out financial statements

The buyer, its lenders, and — if the transaction requires them — the securities laws all need financial statements for a business that never had any.

What they are. Statements prepared by carving the business's revenues, costs, assets, and liabilities out of the parent's consolidated records, with allocations for shared costs.

Why they are unreliable in a specific and predictable way. They contain allocated corporate overhead — a share of the parent's finance, IT, legal, HR, insurance, and executive costs, apportioned on some basis. That allocation reflects the parent's cost structure and its allocation methodology, not what the business will actually cost to run alone.

The standalone cost analysis is therefore the real work. What will the business actually spend on the functions the parent provided? Usually more than the allocation, because the business loses scale in procurement, insurance, benefits, and software licensing. Sometimes less, where the parent's allocation was punitive.

The buyer's model has to bridge three numbers: the allocated cost in the carve-out statements; the TSA cost during transition; and the true standalone cost afterward. Deals are mispriced when the buyer models the allocation and pays the TSA.

The seller's mirror problem is stranded costs. The parent's overhead does not disappear when the business does. If the divested business absorbed twelve percent of the shared services organization, the parent must either eliminate twelve percent of that cost or absorb it. Sellers routinely fail to plan this, and a divestiture that improves the income statement on paper degrades it in practice.

Quality of earnings. Buyers commission a quality of earnings analysis focused specifically on: the allocation methodology; the completeness of costs; separation and one-time costs excluded from EBITDA; the reasonableness of standalone estimates; working capital normalization for a business that used the parent's balance sheet; and intercompany transactions priced other than at arm's length.

Tax and regulatory

Structure drives tax. A taxable asset sale gives the buyer a stepped-up basis and the seller ordinary or capital treatment by asset class. An equity sale of newly formed carve-out entities may be taxable or, in a spin-off structure under 26 U.S.C. § 355, potentially tax-free to the distributing corporation and its shareholders if the elaborate requirements are met — active trade or business, device, business purpose, and continuity — with anti-abuse rules that punish a spin-off followed by a prearranged acquisition.

Pre-closing reorganization tax. Every internal transfer has consequences in every jurisdiction it touches: transfer taxes, VAT, stamp duties, capital gains on intercompany transfers, and withholding. Model the reorganization's tax cost before committing to the structure, because it can exceed the negotiating value of the structure.

Tax attributes. Net operating losses, credits, and basis generally stay with the seller unless the structure moves them deliberately.

Antitrust. A carve-out is a reportable transaction like any other under 15 U.S.C. § 18a if the thresholds are met, and the size-of-transaction and size-of-person tests apply to the carve-out perimeter. Where the divestiture is itself a remedy in another transaction, the agency will scrutinize whether the carved-out business is viable standalone — which puts the TSA, the shared contracts, and the employee list in front of a regulator.

Sector regulation. Licenses, permits, registrations, and authorizations rarely transfer automatically. FDA registrations, environmental permits, export licenses, financial services registrations, and government contract novations each have their own process and their own timeline, and several of them are longer than the deal timetable. Identify them at the start; they are the most common cause of a delayed closing in a regulated carve-out.

Data. Transferring personal data to a new controller requires a lawful basis, notice, and — in some jurisdictions — more. Cross-border transfers need a transfer mechanism. Data separation is also an IT problem: extracting the business's data from a shared system without extracting anyone else's is genuinely difficult and is often the longest pole in the TSA exit.

Worked example: Halloran Industrial sells its filtration business

Halloran Industrial, a diversified manufacturer with four billion in revenue, agrees to sell its filtration business — six hundred million in revenue, four plants, eleven hundred employees across the United States, Germany, and Malaysia — to a private equity buyer.

What exists on day one of the project. Nothing separate. Filtration runs on Halloran's SAP instance alongside three other divisions. Its employees are on Halloran's payroll and in Halloran's benefit plans. Its raw materials are bought under Halloran master agreements. Its products are sold under contracts signed by Halloran. Its plants share sites with two other divisions in two of four locations. Its quality certifications are issued to Halloran. Its most valuable technology is licensed inbound from a Japanese supplier under an agreement signed in 2011 by Halloran's corporate entity.

Perimeter. Counsel recommends a reorganization-then-sale: form Filtration HoldCo and subsidiaries in each jurisdiction, transfer the business in, sell the equity. It converts a four-jurisdiction asset transfer into an equity sale — and it immediately creates the license problem.

The license problem. The 2011 Japanese technology agreement prohibits transfer or assignment without consent, "including by operation of law or by any change in control of the licensee." Under Cincom and the non-assignability principle of PPG, moving the business into Filtration HoldCo — an internal step, before any sale — risks breaching it. The licensor, aware of the transaction, is willing to consent for a fee equal to three years of royalties plus a rate increase. Halloran pays. There is no alternative; the technology is in every product.

Shared contracts. Two hundred forty-one contracts are identified as shared. The triage:

  • 158 are commodity supply agreements — terminate and replace, with the buyer accepting worse pricing at its smaller scale, quantified at four million a year and reflected in the price.
  • 41 are customer contracts covering products from multiple divisions — partial assignment, requiring customer consent. Sixty percent consent within the timetable; the rest are handled by a pass-through arrangement with a two-year sunset.
  • 29 are software and technology licenses — reviewed individually for transfer language. Nine require consent; four of those licensors reprice.
  • 13 are facility leases and services agreements at shared sites — sublease and shared services arrangements, negotiated with landlords who are, predictably, unhurried.

Employees. Eleven hundred people, of whom nine hundred forty are dedicated and one hundred sixty are shared-services or matrixed. The list negotiation runs six weeks. In Germany and Malaysia, automatic transfer principles apply and the works council consultation drives the timetable — the German consultation, not the antitrust clearance, becomes the critical path. In the United States, the buyer makes offers to nine hundred employees; WARN analysis under 29 U.S.C. § 2101 is run for the sites where fewer than all employees receive offers; health continuation responsibility under 29 U.S.C. § 1161 for those not hired is allocated to Halloran; and a 401(k) plan spin-off is documented under the plan transfer rules and the controlled group definitions of 26 U.S.C. § 414.

Carve-out financials. The statements show 78 million of EBITDA after 31 million of allocated corporate cost. The buyer's standalone analysis concludes the true cost of those functions is 43 million — because filtration alone cannot buy insurance, benefits, or software at Halloran's scale. The twelve-million gap moves the purchase price by roughly nine times that figure in enterprise value terms, and it is the single most consequential number in the diligence.

Halloran's stranded costs. Filtration absorbed 31 million of shared cost. Halloran can eliminate 19 million of it within a year and must absorb 12 million. Nobody had modeled this until the buyer's standalone analysis prompted the question, and it changes Halloran's own post-divestiture guidance.

The TSA. Thirty-one services across seven functions. IT is the longest at twenty-four months, because extracting filtration's data from a shared SAP instance requires a full implementation on the buyer's side. Pricing is cost plus five percent, escalating to cost plus fifteen percent after month twelve and cost plus thirty percent after month eighteen — deliberately punitive, to force exit. Service levels are benchmarked to Halloran's own internal performance in the prior twelve months, with service credits and a liability cap of twelve months' fees.

The reverse TSA nobody planned for. Halloran's specialty coatings division has been buying a filtration component from the Malaysian plant at an internal transfer price for nine years. There is no contract. The buyer, discovering this three weeks before signing, negotiates a three-year supply agreement at a price forty percent above the historical internal transfer price. It is the buyer's best trade in the entire deal, and it exists only because someone asked the question.

Day one. Filtration operates. Payroll runs — on Halloran's system, under the TSA. Customers are invoiced from Halloran's SAP, with remittance to a new lockbox. Products still bear the Halloran name under a transitional trademark license with an eighteen-month sunset and quality control provisions. Nobody outside the company notices anything.

Month fourteen. The buyer's SAP implementation is four months late. TSA pricing has escalated twice. The buyer requests an extension; Halloran grants it at a further premium and demands a milestone-based migration plan. This is the normal outcome, and the parties who anticipated it in the exit provisions are the ones not litigating about it.

Information technology, in more detail

IT is the longest, most expensive, and least understood workstream in almost every carve-out, and it is worth understanding why.

The problem is not moving software; it is untangling data. A shared ERP instance holds the divested business's transactions interleaved with three other divisions', in the same tables, keyed by fields that were never designed to separate them. Extracting only the right rows — customers, vendors, materials, orders, history, master data — is a data engineering project, not a licensing question.

The three exit paths.

Clone and divide. Copy the entire instance, then delete what does not belong to each side. Fast, expensive in licensing, and it means each party holds a copy of the other's data until deletion is verified — which is a data protection problem as well as a commercial one.

Extract and implement. The buyer stands up a new instance and migrates the extracted data. The most common approach for a business of any size, and the reason IT TSAs run eighteen to twenty-four months.

Continue on the seller's system indefinitely. Occasionally negotiated for smaller carve-outs. It postpones the problem, entangles the parties, and is nearly always regretted.

License consequences. Enterprise software licenses are typically priced by users, entities, or revenue, and permit use by the licensee's affiliates. The divested business ceases to be an affiliate at closing. Continued use under the TSA requires the vendor's agreement, and vendors know this — TSA-period license extensions are routinely repriced, and the cost belongs in the model.

What else lives in IT. Email domains and migration. Network separation at shared sites. Identity and access management. Cybersecurity tooling and monitoring. Backup and disaster recovery. Product-embedded software and its update infrastructure. Customer-facing portals. Each is a separate TSA line with its own exit.

Two practical rules. First, the IT separation plan should exist before signing, at least at the level of approach and duration, because it determines the TSA term and therefore a material part of the cost. Second, data deletion obligations should be explicit and verifiable — with a certification requirement and a deadline — or each party will hold the other's data indefinitely.

The separation management office

Large carve-outs are run through a dedicated structure, and the structure matters more than any single document.

What it looks like. A separation management office with a full-time leader on each side; functional workstreams for IT, finance, HR, legal, tax, procurement, operations, real estate, and communications; a single integrated plan with dependencies; and a steering committee that meets weekly and can decide things.

What it produces. A day-one readiness checklist, tracked to closure. A blueprint of what "separated" means for each function. A TSA schedule set drafted by the service owners. An issues log with owners and dates. And a dis-synergy and one-time cost model that both sides can see.

Why it should start before signing. The separation plan informs the perimeter, the TSA scope and duration, the standalone cost model, and therefore the price. A seller that begins separation planning after signing has already lost the ability to control the TSA's length.

Clean team protocols. Where the parties are competitors, or where the sale is a competitive process, competitively sensitive information — customer pricing, margins, forward plans — should flow through a clean team with defined membership, defined permitted uses, and no dissemination to business personnel until closing.

Communications. Employees, customers, suppliers, and regulators all learn about the transaction on a timetable someone should control. Announcement day is when the recruiters call, and retention should be in place before it, not after.

Where carve-outs go wrong

The perimeter is defined by a standard rather than a schedule. "Primarily related to the Business" produces a dispute for every shared asset.

Consents are diligenced after signing. The counterparties learn the timetable and price accordingly.

Inbound licenses are assumed to travel. Cincom is the cautionary case: an internal reorganization breached a license, and no external assignment ever occurred.

Trademark assignments omit the goodwill. 15 U.S.C. § 1060 requires it; an assignment in gross is invalid.

The buyer models allocated cost instead of standalone cost. The gap is usually large and always in the same direction.

The seller ignores stranded costs. The divestiture improves the reported margin and degrades the actual one.

The TSA scope is written by lawyers. It must be written by the people who perform the service, or it will describe something nobody recognizes.

There is no exit plan. A TSA without milestones and a hard outside date becomes a permanent, expensive, deteriorating relationship.

The reverse TSA is discovered late. Ask early what the retained business gets from the divested one — the answer is never "nothing."

Regulatory transfers start too late. Permit, registration, and novation timelines routinely exceed the deal timetable, and they are not compressible.

Key people leave. The recruiters call on announcement day. Retention should be funded before that, not after.

Buyer type changes the deal

A strategic buyer with its own infrastructure wants a short TSA and a fast migration onto its own systems. It may not need finance, HR, or IT services at all beyond a few months. Its diligence focuses on the perimeter and on whether the business's customers and technology travel intact.

A private equity buyer building a standalone platform needs everything. It has no ERP to migrate to, no finance organization, and no HR function. Its TSA is long, its standalone cost model is the central diligence exercise, and its first-year priority is hiring a management team and a back office. The dis-synergy analysis matters more to this buyer than to any other, and it will negotiate the TSA harder than the purchase agreement.

A competitor raises antitrust review, clean team protocols, and the question of whether the seller will hand over customer and pricing information at all before closing. It also raises the sharpest version of the shared-IP problem, since the cross-licenses run between competitors.

Management or a founder buyout brings conflict of interest questions, financing constraints, and — often — an unrealistic view of how much the parent was actually providing. The standalone cost conversation is hardest with a buyer who has been running the business inside the parent for years, because they genuinely believe they know what it costs.

And on the sell side, the seller's identity matters too. A public company divesting to improve its portfolio has a stranded cost problem and a guidance problem. A private equity seller exiting a platform has a clean-break incentive and will resist a long TSA. A distressed seller may not be able to perform the TSA at all — which makes seller creditworthiness a real diligence item, not a formality.

Real estate and shared sites

A carve-out where the two businesses share a physical site produces a set of problems that no amount of contract drafting fully solves.

The configurations. A single building housing both businesses. A campus where one business owns the land and the other occupies part of it. A plant where the divested business's production line sits inside the retained business's facility, sharing utilities, receiving, and environmental permits.

The instruments. A sublease or lease for the divested business's space, with a term matched to the buyer's relocation plan. A shared facilities agreement covering utilities, security, receiving, waste handling, cafeteria, parking, and maintenance, with cost allocation and service standards. Access and easement rights where the divested business needs to cross retained land or use retained utilities.

Environmental. Shared permits usually cannot simply be split; one party remains the permit holder, and the other operates under an arrangement with the regulator's knowledge. Historical contamination allocation is negotiated separately from operational responsibility, and a baseline environmental assessment at closing is worth its cost.

The relocation question. Where the buyer will eventually move out, the agreement should set a target date, allocate the relocation cost, and specify restoration obligations. Where the buyer will stay indefinitely, the arrangement is effectively permanent and should be documented as a real lease with real terms rather than as a transitional accommodation.

Landlord consents. Where the site is leased from a third party, every one of these arrangements requires the landlord's consent, and landlords in a known transaction timetable behave exactly as commercial counterparties in that position behave. Start early.

Purchase agreement provisions specific to carve-outs

A carve-out purchase agreement contains a set of provisions that a whole-company agreement does not, and they are where the separation risk is allocated.

Wrong pockets. For a stated period after closing — typically twelve to twenty-four months — either party may identify an asset or liability that ended up on the wrong side, and the parties transfer it for no additional consideration, with the transferring party bearing reasonable costs. Every carve-out needs one, because every carve-out has misallocated assets.

Further assurances, with teeth. A general further assurances clause is inadequate. The provision should require specific cooperation on consents, novations, regulatory transfers, and data migration, with named contacts and response times.

Non-obtained consents. What happens if a material consent never arrives? The workable structure: the seller holds the benefit in trust for the buyer, performs at the buyer's direction and cost, and the parties cooperate to obtain a replacement — with a sunset, and with a purchase price consequence only for contracts specifically identified as material.

Shared contract allocation schedule. A schedule categorizing every shared contract into its treatment path — assign, split, pass through, replace — with the responsible party and the target date.

Intercompany arrangements. All intercompany balances settled or eliminated at closing; all intercompany agreements terminated except those specifically continued; and — critically — all informal intercompany supply arrangements identified and documented, because the undocumented ones are exactly the reverse TSA nobody planned.

Insurance. Occurrence-based policies covering pre-closing periods generally stay with the seller; the buyer wants access to those policies for claims relating to the divested business, which requires an express provision and sometimes the insurer's cooperation. Claims-made policies need tail coverage. Neither is automatic.

Non-compete and non-solicit. The seller agrees not to compete with the divested business for a period, with carve-outs for existing businesses, de minimis ownership, and acquisitions of businesses with incidental competing operations. Non-solicit provisions run both ways and should permit general advertising.

Financing cooperation. Where the buyer is financing, the seller must provide financial information and cooperation for the debt raise, at the buyer's cost, with express limitations on the seller's liability.

Post-closing purchase price adjustment. Complicated by the fact that the business had no balance sheet. The working capital target must be built from the carve-out statements using the same methodology as the closing statement — and the intercompany balances that were eliminated at closing must be handled consistently in both.

Practice pointers

Schedule assets by name and use a residual standard only as a sweep — with a wrong-pockets provision for what turns up later.

Run consent diligence before signing, categorize contracts into the four treatment paths, and allocate consent costs in the agreement.

Review every inbound license for transfer language before choosing the structure, because the structure may breach them.

Get IP assignment formalities right: writing and recordation under 35 U.S.C. § 261; goodwill under 15 U.S.C. § 1060; signed writing under 17 U.S.C. § 204.

Build the standalone cost model early and negotiate the price against it, not against the allocation.

Model stranded costs on the sell side before announcing the divestiture's financial benefit.

Have the service owners draft the TSA schedules, and benchmark service levels to the seller's own historical internal performance.

Escalate TSA pricing deliberately and pair it with milestones and a hard outside date.

Ask what the retained business receives from the divested one, and price the reverse TSA before the buyer does it for you.

Start regulatory transfers, works council consultations, and IT separation planning on day one — they are the critical path, and they never compress.

Related documents

This article is general information, not legal advice, and does not create an attorney-client relationship.