Corporate Sales - Stage 1, Heads of Terms and NDAs

Following our ‘April Acquisitions’ four stage summary published earlier this year for the benefit of prospective purchasers of businesses or shares in a company, during September Scott Richardson from our Corporate and Commercial Department will be concentrating on the Seller’s perspective and providing a four stage summary of the share or business sale process for anyone looking to sell a business or shares in a company.

After negotiating the terms of sale with the Purchaser, including importantly deciding whether the transaction is to be a share or business/asset sale, the first action that should be undertaken is to set out the agreed terms in a Heads of Terms document. In addition, and in certain circumstances, a separate Non-Disclosure Agreement (NDA) may also be required, for example if confidentiality obligations are not set out in the Heads of Terms. 

Although Heads of Terms are generally non-binding (except where stated, for example confidentiality obligations), and are not strictly necessary, they provide both parties (and all advisors) with a useful tool to:

• try and keep negotiations that may be required later in the process down to a minimum, for example when agreeing the legal documents required, and more importantly to keep costs down to reasonable levels;
• provide a summary of the agreed terms in one easy to access document; and
• confirm those obligations agreed with the Purchaser which are intended to be legally binding between the parties, for example confidentiality obligations which are of particular importance to the Seller.

1. Transaction type - so whether a share sale or a business/asset sale.
2. Price and payment terms - the headline price and whether this is adjustable, This should also include details as to whether all or part of the price is to be paid at completion or on a deferred basis.
3. Key terms in sale agreement - a summary of some of the key terms to be included in the main sale agreement, including any post-completion handover assistance and non-compete provisions that may apply to you as the Seller.
4. Due diligence - confirmation of the nature and extent of the due diligence the Buyer intends to undertake on the target company or business to help understand likely timescales and the level of legal and accounting assistance required. 
5. Confidentiality obligations - primarily for the benefit of the Seller to try and ensure a Purchaser cannot use any confidential information relating to the target company or business you provide as part of the due diligence process for the Purchaser’s own commercial gain, whilst also trying to ensure the terms of the deal are kept confidential from third parties, for example competitors. For larger sized transactions, a separate NDA may be more appropriate.

If you are at an early stage of looking to sell a business or shares in a company, and require legal assistance with reviewing or preparing the Heads of Terms and NDA where applicable, please contact Scott Richardson in our Corporate and Commercial Team by phone on 01329 227907 or by email on scott.richardson@glanvilles.co.uk.