Mastering Term Sheets: Drafting & Negotiation Essentials

Define a term sheet and explain its role in an M&A and PE life cycle. Outline the term sheet's purpose in the transaction and the upfront, commercially critical terms.

Identify the term sheet as a written confirmation of main terms in a transaction, outlining negotiation timetable, roles, obligations, and a framework for binding or non-binding preliminary clauses.

A term sheet is usually non-binding, but exclusivity, confidentiality, and break fee clauses can be legally binding, with Indian law turning on whether the company is listed or private.

Enter the term sheet at the very beginning of a transaction to secure deal certainty before due diligence and long-form documents.

The term sheet is typically drafted by the buyer's in-house legal and business teams, not the law firm, and it arrives in a signed format you cannot review beforehand.

Explore the flexible formats of term sheets under Indian law, from letters and tabular formats to short agreements or emails outlining key terms. Emails capture terms and forward to advisors.

Evaluate transaction length to decide on a term sheet or direct drafting, noting that term sheets clarify assumptions, costs, warranties, and exclusivity, while guiding focused negotiations.

From the seller’s perspective, a term sheet reveals highlights and gaps before due diligence, while buyers should list key assumptions to avoid disputes and guide negotiations.

Avoid stalling term sheet negotiations over minor details that can be resolved later; focus only on points bearing on key commercial terms to keep the deal moving.

Explore the drafting of term sheets and the principles that belong in heads of terms, not details. See how M&A and PE deals produce a 2–3 page term sheet.

Identify whether term sheet is binding or non-binding. Outline the introductory paragraph to summarize the potential transaction, such as a non-binding acquisition of shares by the acquirer from a seller.

Identify the parties in a term sheet for a deal, including seller and buyer or investor, with spvs or affiliates investing and company or promoter signing.

Identify the transaction structure by outlining the asset being acquired and whether it involves a primary or secondary purchase, and a majority or minority stake, with a clear overview.

List the transaction documents you expect to enter into to clarify a non-binding term sheet, including share purchase agreement, share subscription agreement, shareholders agreement, escrow, employment, and transition services agreements.

Draft the purchase price clause to cover fixed, milestone-driven, or earnout payments, with modalities including cash, shares, or non-cash consideration, while ensuring legal permissibility and potential tranche or deferred payment.

Term sheets include due diligence and conditions precedent, outlining tax, legal, commercial, environmental, and technical diligences that determine whether the buyer proceeds or adjusts the deal.

Protects the buyer from surprises by requiring prior approval for extraordinary actions under standstill obligations, ensuring the company maintains ordinary-course operations and preserves value during diligence.

Highlight exclusivity as a buyer-friendly term sheet clause in bilateral deals, limiting seller outreach to a single buyer, guiding diligence and timely execution of documents.

Outline the timelines for diligence, execution of documents, and closing, and align exclusivity triggers with regulatory and deal-specific factors to set a reasonable, agreed transaction timetable.

Representations and warranties drive term sheet expectations, with buyers seeking standard business warranties and sellers often offering only fundamental warranties tied to title and authority.

Explain indemnity provisions tied to reps and warranties in term sheets, including open versus capped indemnities, durations, and insurance options; specify unlimited fundamental, 100% business, 50% tax.

Identify and negotiate shareholder rights in term sheets, including governance provisions, board composition, reserved matters, transfer restrictions, tag along, exit rights, and event of default.

Identify and apply miscellaneous provisions in a term sheet, including confidentiality obligations, fee allocation, governing law and dispute resolution, termination terms, and counterparts.

Examine binding provisions in a non-binding term sheet, covering confidentiality clause, fees and expenses, governing law, dispute resolution, and who signs the seller, buyer, or company.

Review the key terms of a term sheet, how they are drafted from buyer and seller perspectives, and keep the document short, high level, and commercially focused.