Company News, Deals
Navigating the deal journey: Why strong Heads of Terms and early advice matter
1–2 minutes
Selling a business is one of the most significant events in an owner’s professional life. Whether you have engaged a corporate finance adviser to run a competitive process, or an unsolicited offer has landed on your desk, the journey always begins with one critical document: the Heads of Terms.
These early-stage discussions set the tone for everything that follows. While the document itself is not legally binding, its influence on the deal is substantial and should not be underestimated.
Setting the Foundations
The Heads of Terms (“HoT”) outline the fundamental basis of the buyer’s offer. This typically includes:
- The value of the consideration for the shares or business assets
- Expectations around the ongoing involvement of key staff or sellers
- Payment structures for any deferred or variable consideration
- Any exclusivity period
- Other essential commercial agreements between the parties
Once signed, the HoT reflects a mutual commitment. Both parties will start to invest time, incur professional fees, and advance the deal in good faith.
And while the HoT is not legally binding, deviating from it later can be difficult, time consuming, and costly. Poorly defined terms at this stage often lead to protracted renegotiation, something no seller wants mid-deal. A well drafted HoT document sets the scene for a smoother, more predictable transaction.
How PEM can help
Our corporate finance and tax teams can review or negotiate the HoT on your behalf, ensuring it reflects your expectations, protects your position and reduces the risk of later surprises.
Please note that this content is not intended to give specific technical advice. It is designed to highlight some of the key changes rather than provide an exhaustive explanation of the topics. Professional advice should always be sought before action is either taken or refrained from as a result of information contained herein.
About the author
Mike Godfrey | Partner, Business Tax
Mike is a Partner in our Business Tax team. He joined as a trainee accountant in our Audit and Accounts team in 2003 and gained his ACCA qualification in 2009. After eight years, Mike wanted a new challenge and moved across to our Business Tax team, where he studied to be a Chartered Tax Adviser.
