Chapter 08
The term sheet
A term sheet writes down what the parties believe they have agreed, before lawyers turn it into contracts. Most of it is not binding, and it still determines the outcome.
What it contains
- The object: shares or assets, and exactly which ones
- The consideration and how it is split between closing and later
- Conditions that must be met before signing
- The scope and duration of the due diligence period
- Exclusivity: whether the seller may keep talking to others
- Warranties in outline, and any cap on liability
- A timetable with dates rather than durations
The binding parts
Exclusivity, confidentiality and the allocation of the parties' own costs are usually binding. The commercial terms are not, and saying so explicitly avoids a later argument about whether a deal already existed.
Exclusivity deserves attention because it is the moment the seller gives up leverage. A period long enough to complete an investigation, and no longer, is the balance most advisers aim for.
Why it is worth the effort
Every point that is left open in a term sheet reappears during contract drafting, when both sides are tired and one of them has already stopped looking at alternatives. Points settled early are settled cheaply.
A term sheet also functions as a test of decisiveness. A candidate who cannot commit to an outline will not commit to a contract.
- What a term sheet covers in a business transaction (https://www.businessforsale.eu/knowledge-base/term-sheet)
- The steps of an acquisition process (https://www.businessforsale.eu/knowledge-base/business-acquisition-process)