Buying a business:
Heads of Terms
Heads of Terms are a final offer letter, where the majority of the terms are not binding and are subject to contract. Heads of Terms are not essential, but we recommend that they are prepared since they gives a final opportunity for any issues to be sorted out before the costs related to the detailed due diligence and the preparation of the contract are incurred. The following matters are normally covered in heads of terms.
Expressed as 'subject to contract' (and therefore not legally binding):
- a description of what is being sold
- any pre-sale conditions (such as pre-sale dividends)
- details of the amount of the consideration and the method of payment
- details of how any contingent consideration (the earnout) will be calculated
- the basis of accounting for any completion accounts that will be used to calculate the consideration
- principal conditions of the offer (eg subject to due diligence)
- treatment of any service agreements of the directors and employees
- confirmation that the purchaser has the financial resources to honour the offer
- agreement as to the scope of the due diligence, and who will conduct it
- acknowledgement that the agreement will be subject to warranties and indemnities
- details of any restrictive covenants (eg vendors cannot set up a competing business)
- detailed timetable to completion
Legally binding:
- confidentiality (if not already agreed)
- exclusivity period
- who will bear the costs (usually each party bears its own costs)
 | |
Where next?
Within The acquisition process…
- Finding and approaching suitable target businesses
- Project management and negotiation
- Estimating the value of the business
- Deciding what to buy
- Financing the deal
- Identifying any key contractual terms
- Due diligence
- The final contract and beyond
Within Buying a business…
General...
- Contact us about this issue
- Read about how we can help you & your family
- Request a meeting with us
