The first document that I usually draft for an M&A transaction is the term sheet (sometimes referred to as the letter of intent/ heads of agreement/ memorandum of understanding).

The purpose of a term sheet is to serve as a framework for drafting the definitive sale and purchase agreement.

A term sheet is typically non-binding save for certain key clauses.

From the buyer’s perspective, it is important to have a binding exclusivity clause which requires the seller to negotiate the transaction exclusively with the buyer for an agreed period. As the buyer will incur substantial resources, costs and time pursuing the transaction, the buyer will want the assurance that the seller will not enter into negotiation or agreement with another prospective buyer during the exclusivity period.

From the seller’s perspective (and in some cases, from the buyer’s perspective as well), it is important to have a binding confidentiality clause. As the seller may be providing information about the target business or target company while negotiating the term sheet, the seller will want to ensure that the buyer keeps the information confidential.

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This post was first posted on Linkedin on 25 November 2022.