WHAT IS A TERM SHEET?

TERM SHEETS

The first step in many M&A transactions is the execution of a Term Sheet or a Letter of

Intent between the buyer and the target company (the “Target”).

WHAT IS A TERM SHEET?

A Term Sheet is generally a non-binding document signed between the target company

and a potential buyer which outlines the principal terms of the proposed transaction.

Although most Term Sheets are non-binding, they often contain binding provisions

relating to no-shop obligations, exclusivity and confidentiality.

WHY ARE THE TERMS OF A TERM SHEET IMPORTANT IF IT IS NON-BINDING?

In addition to the purchase price, many transaction terms affect the timing and

completion of the transaction, as well as post-closing issues, including when the

purchase price will effectively be transferred to the seller. Since these matters are

usually negotiated at the Term Sheet stage, it is unlikely that the parties will revisit them

later in the process.

WHY DO PARTIES SIGN A TERM SHEET INSTEAD OF MOVING DIRECTLY TO THE SPA?

Because the parties will incur significant costs and invest substantial effort in negotiating

the final agreement and related transaction documents. Agreeing on the key commercial

terms at an early stage ensures that the parties are aligned before proceeding further

and provides guidance to those preparing and advising on the transaction

documentation.

WHAT IS USUALLY INCLUDED IN A TERM SHEET?

Typical transaction terms that commonly appear in a Term Sheet include:

1. Purchase price: The expected price the buyer will pay to acquire the Target.

2. Transaction structure: Defines how the transaction will be structured, including

whether it will be structured as an asset deal or a share deal.

3. Due diligence: The scope and conditions of the buyer’s review of the Target’s

business.

4. Representations and warranties: Statements and assurances provided by the seller

regarding the condition of the Target’s business.

5. Conditions to closing: Conditions that must be satisfied by both parties before the

transaction can be completed.

6. Indemnification: Provisions governing how potential post-closing losses will be

compensated.

7. Governing law: Specifies which law will apply to the interpretation and enforcement of

the terms.

8. Termination provisions: Conditions under which either party may terminate the

transaction.

9. Confidentiality: The obligation of the parties to keep transaction-related information

confidential.

10. Exclusivity: The obligation of the Target not to negotiate with other potential buyers

for a specified period of time.

These provisions typically form the framework of the negotiations and serve as the basis

for preparing the final agreement. It is important that the parties carefully review the

Term Sheet and understand the implications of each provision before proceeding to the

next stages of the transaction.