M&A: Term sheet in M&A transaction

๐˜œ๐˜ด๐˜ฆ ๐˜ข ๐˜ต๐˜ฆ๐˜ณ๐˜ฎ ๐˜ด๐˜ฉ๐˜ฆ๐˜ฆ๐˜ต ๐˜ง๐˜ฐ๐˜ณ ๐˜ต๐˜ฉ๐˜ช๐˜ด
A term sheet is used in M&A transaction to set out the key commercial terms such as price, basis for price adjustment, earn out, profit guarantee and execution of new employment agreements with key employees of the target entity.

The term sheet may be non-binding save for certain clauses such as confidentiality and exclusivity of negotiation between the parties for an agreed period.

๐˜‹๐˜ฐ ๐˜ฏ๐˜ฐ๐˜ต ๐˜ถ๐˜ด๐˜ฆ ๐˜ข ๐˜ต๐˜ฆ๐˜ณ๐˜ฎ ๐˜ด๐˜ฉ๐˜ฆ๐˜ฆ๐˜ต ๐˜ง๐˜ฐ๐˜ณ ๐˜ต๐˜ฉ๐˜ช๐˜ด
A term sheet is not meant to deal with legal details such as representations, warranties, indemnities and exclusion of liabilities.

Having a well-thought-out term sheet would facilitate the drafting of transaction agreements and speed up the transaction.

Conversely, a term sheet that is missing key commercial terms would mean that the parties have to negotiate some of the commercial terms for the first time during the drafting of the transaction agreements.

Based on my experience, this slows down the transaction as more time is required to amend the draft transaction agreements.

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This post was first posted on Linkedin on 10 October 2022.

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