Acquisition heads of terms: a checklist for business buyers

Heads of terms record the main points of a proposed acquisition before the detailed purchase agreement is settled. Their practical value is simple: they expose different assumptions while those assumptions can still be discussed openly.

A buyer who agrees only a headline price can discover later that the seller expects to retain cash, remove an asset or receive payment sooner than the buyer anticipated. A useful set of heads makes those questions visible.

Do not assume the whole document is non-binding

In UK private M&A, heads of terms are commonly intended to be non-binding on the acquisition itself, while provisions such as confidentiality, exclusivity, costs and governing law may bind the parties. Baker McKenzie's UK M&A guide describes that distinction. The wording and circumstances matter: ask your own solicitor to explain the effect before signing.

Separate the proposed commercial terms from the clauses intended to take effect immediately. Do not treat a heading or the words “subject to contract” as a substitute for checking the actual obligations.

Resolve the commercial questions in a sensible order

1. Parties and scope. Identify the buyer, seller and target. Specify whether the discussion concerns shares or identified business assets, and what is excluded.
2. Price and assumptions. Distinguish an enterprise valuation from the amount payable to the seller. Ask how cash, debt and working capital are intended to affect the price.
3. Payment. Record the proposed split between payment at completion, deferred payments and any performance-related amount. Describe what still needs agreement.
4. Conditions. Identify funding, satisfactory investigation, consents and approvals that are relevant to proceeding.
5. People and handover. Explain any proposed seller support, management arrangements and transition period.
6. Process. Set out the information timetable, adviser contacts, exclusivity proposal and responsibility for costs.

Use an assumptions table beside the price

For example, a buyer might discuss a price on the assumption that agreed equipment remains, a key contract continues and a normal amount of working capital is available. Put each assumption on a separate line. Add the evidence required and what the parties will discuss if the assumption proves wrong.

This is a way to prepare a commercial conversation, not a formula for adjusting a legal purchase price. Completion accounts, locked-box arrangements and deferred consideration need transaction-specific financial and legal advice.

Make exclusivity workable

Exclusivity is of limited practical use if the buyer cannot obtain the information needed during the agreed period. Discuss the data-room timetable, access to management, the expected adviser response times and who can approve an extension. Put a reminder in your timetable before the period expires.

Think about both sides' dependencies. A seller may need time to retrieve records; a buyer may need a lender's decision. A timetable that ignores either issue gives a false impression of progress. Ask your solicitor to settle the actual exclusivity obligations.

Five questions before signing

• Can both parties describe the transaction in the same way?
• Is the price qualified by clear assumptions rather than unexplained shorthand?
• Are binding provisions identified and understood?
• Does the timetable allow the investigation and funding work to happen?
• Have your solicitor and accountant identified points that should be resolved now?

Keep unresolved issues explicit. “To be agreed” may be more honest than wording that suggests agreement where there is none, but it should also tell you whether the transaction is ready for the next stage.

From heads to investigation

Use the acquisition heads of terms product page to assess the preparation material's scope. The buyer document checklist shows where the heads fit. For a live deal, your independent transaction solicitor should advise on the terms and prepare or negotiate the definitive agreement.