A business sale is one of the most crucial aspects of your entrepreneurial journey. When selling your business, you usually deal with several documents that contribute to a successful sale.
The M&A term sheet is one of the earliest documents in a business sale, and it can be difficult to navigate without the special help of M&A attorneys and other experts.
We can help you find the right M&A attorneys to negotiate deal sheets with your potential buyers before you settle on the most favorable one.
Consult with us at Exitwise today.
An M&A term sheet is typically a preliminary document that outlines the key terms and conditions of a proposed M&A transaction.
The document may also be called an M&A deal sheet and is usually written as a list of bullet points.
It is one of the early documents drafted by the buy side in the M&A process and usually features your signature as the seller and that of the prospective buyer.
Depending on the jurisdiction and the nature of the deal, the term sheet, letter of intent, and MoU may be used interchangeably in most cases.
But here's how the three early-stage M&A documents compare:
Aspect
Term Sheet
Letter of Intent (LOI)
Memorandum of Understanding (MoU)
Purpose
To help you and the buyer understand the key terms of the deal before investing time and other resources into due diligence and final negotiations.
To express the seriousness and genuine interest of the buyer in buying your company or business.
To outline the key terms and details of an M&A understanding, especially showing each party's responsibilities and requirements.
Binding Nature
Generally not legally binding but may include binding clauses such as exclusivity.
Typically not binding but may contain some binding clauses.
Usually non-binding but may have binding clauses, depending on the intention of the parties involved.
Detail Level
Typically contains fewer details, mainly the deal’s terms and conditions.
Contains content such as deal structure, closing conditions, and confidentiality agreement.
Focuses on the objectives, duties, responsibilities, and general rules governing a potential M&A collaboration.
Usage in Process
Usually forms the basis for further negotiations and drafting of the purchase agreement.
Typically comes after the term sheet, Indication of Interest, or both.
Less common in mergers and acquisitions but is usually used to ensure that you and the buyer agree on your obligations and responsibilities before due diligence and further negotiations.
Role of Legal Counsel
The legal counsel often helps review and negotiate the term sheet to protect your interests as the seller.
The legal counsel usually helps review the document to identify potential issues and negotiate on your behalf.
The legal team may help you draft, review, and negotiate the responsibilities and obligations.
Note: The three documents may be used in place of each other in the US, depending on the deal and the parties involved.
Here's why a merger and acquisition term sheet is essential:
As mentioned, the buy side typically drafts the term sheet and sends it to you for negotiations and signing.
That’s why you may want to consider the following key aspects they may keep in mind when writing the document:
Below are the elements you may expect in an effective term sheet:
Evidently, reviewing and negotiating a favorable term sheet can be an uphill task, given the many elements you need to look out for. You may have to work with an attorney to help you.
When you talk to us at Exitwise, we can help you hire and manage an experienced attorney to help you review and negotiate an effective term sheet. Talk to our M&A team today to start the hiring and management process.
As you review and negotiate the term sheet for an asset purchase, merger, stock purchase, or acquisition, you may want to watch out for the following pitfalls:
Below are common questions about M&A term sheets:
A term sheet is usually not legally binding and is preliminary, while a contract is typically legally binding and more conclusive because it includes the terms and conditions of the deal as finally agreed upon.
The possibility of modifying a term sheet usually depends on the parties involved and the changes needed. Some changes may be difficult to renegotiate and modify once signed.
However, you and the buyer may agree to modify the term sheet if you both agree to the proposed changes.
You might want to start working with an M&A attorney right from the start to help you get things right and avoid needing modifications. We at Exitwise can help you work with the best attorney for your custom needs.
Typically, buyers give you a few days to a week to respond, negotiate, and finalize a term sheet. If you need more time, you may negotiate that with the buyer.
You may find it difficult to review and negotiate an effective M&A term sheet on your own because it usually contains many provisions.
So, you may want to work with M&A attorneys and other professionals to help you evaluate the document and negotiate the best terms possible.
When you work with our team at Exitwise, we can help you recruit and manage industry-specific M&A experts to help with the many aspects of your business exit.
Schedule a consultation with us at Exitwise today so we can help you find the best M&A attorney to help you draft, review, or negotiate all the documents related to your business sale.
Let Exitwise introduce, hire and manage the best, industry specialized, investment bankers, M&A attorneys, tax accountants and other M&A advisors to help you maximize the sale of your business.