DorisMorris

M&A Term Sheet: Comprehensive Guide

Master the essential terms and negotiation strategies for successful M&A transactions

Get Term Sheet Support

Essential Term Sheet Components

Purchase Price Structure
  • • Base purchase price
  • • Cash vs stock consideration
  • • Earnout provisions and metrics
  • • Working capital adjustments
  • • Debt and cash assumptions
  • • Escrow and holdback amounts
Risk Allocation
  • • Representations and warranties
  • • Indemnification provisions
  • • Survival periods and baskets
  • • Material adverse change definitions
  • • Disclosure schedules scope
  • • Insurance and liability caps
Closing Conditions
  • • Regulatory and antitrust approvals
  • • Third-party consents and waivers
  • • Financing conditions
  • • Due diligence completion
  • • Key employee agreements
  • • No material adverse change

Key Valuation Components

ComponentDescriptionKey Considerations
Enterprise ValueTotal company value including debtBasis for purchase price calculation
Working CapitalCurrent assets minus current liabilitiesDollar-for-dollar purchase price adjustment
Cash-Free, Debt-FreePrice excludes cash and debtStandard M&A pricing convention
EarnoutContingent consideration based on performanceBridges valuation gaps and aligns interests

Term Sheet Negotiation Best Practices

Strategic Approach
  • • Prioritize most important terms early
  • • Understand counterparty motivations and constraints
  • • Focus on economic substance over form
  • • Build in flexibility for changing circumstances
  • • Address potential deal-breakers upfront
  • • Create win-win structures where possible
  • • Document all key assumptions and dependencies
  • • Plan for post-closing integration needs
Common Pitfalls
  • • Focusing only on purchase price, ignoring terms
  • • Leaving key definitions undefined or ambiguous
  • • Accepting unrealistic closing timelines
  • • Overlooking regulatory and consent requirements
  • • Inadequate protection against key person risk
  • • Failing to address cultural integration
  • • Ignoring tax optimization opportunities
  • • Insufficient contingency planning

Need Term Sheet Guidance?

Get expert valuation and negotiation support for your M&A term sheet

Get Expert SupportBack to M&A Documents