Contents
- What heads of terms cover
- What's binding and what isn't
- Two clauses that need the most care
- Practical tips
- Questions
Once both sides are serious, the deal is captured in heads of terms (also called a term sheet or heads of agreement). The formal sale agreement is drafted from it. Agree the points that matter most to you at this stage, before you grant the buyer exclusivity and while you could still talk to someone else. Some clauses bind you as soon as you sign, and two others need particular care.
What heads of terms cover
- Price
- The number and exactly how it's calculated (e.g. multiple of GRF, with the fee base defined)
- Structure
- Cash on completion vs deferred vs any earn-out — and the timing of each tranche
- Deal type
- Share sale or asset sale — it drives your tax, so decide deliberately
- Timeline
- Target completion date and the length/shape of the handover
- Your involvement
- Clean break, or a phased step-down — for how long, doing what, and paid how
- People & clients
- What happens to staff (TUPE) and how client relationships are transitioned
- Conditions
- What must be true to complete (satisfactory diligence, consents, etc.)
- Exclusivity
- A period in which you won't negotiate with other buyers
- Confidentiality
- How the process — and the fact of it — stays private
- Warranties (outline)
- The broad shape of the assurances you'll give in the final agreement
What's binding and what isn't
Most of the commercial terms (price, structure) are usually a statement of intent, firmed up in the sale agreement after diligence. But several clauses are typically legally binding even at heads-of-terms stage, so read them carefully:
- Confidentiality — both sides keep the discussions, and often the fact of them, private.
- Exclusivity — you agree not to talk to other buyers for a set period. Agree a fixed period with an end date.
- Costs — who bears their own advisory costs (usually each side its own).
The non-binding terms still matter. The sale agreement is drafted from what the heads say, and changing a term later is possible but costs goodwill and slows the deal.
Two clauses that need the most care
The first is what happens to staff and clients after completion. If their continuity matters to you, say so here, in writing, so that it is part of the deal from the start. The second is how any deferred consideration is protected: how it's calculated, when it's paid, and what happens if the buyer's own actions affect it. Agree both before you sign the heads and grant exclusivity; see earn-outs and deferred consideration and the tax treatment.
Practical tips
- Take advice before signing, even though most of it is non-binding. The binding clauses (exclusivity, confidentiality, costs) carry real obligations.
- Define the fee base precisely. "1× recurring fees" means little until "recurring fees" is defined.
- Keep exclusivity time-limited and tied to the buyer progressing in good faith.
- Write down the handover — your role, hours and duration — so expectations are shared.
Heads of terms come after initial due diligence and lead into the formal agreement and completion.
