Heads of Terms
Definition
Heads of terms (also called a letter of intent or memorandum of understanding) is the short document that records the main commercial terms a buyer and seller have agreed in principle before formal contracts are drafted. It typically covers the headline price, the deal structure (a share sale or an asset sale), any earn-out, the conditions to completion, and an exclusivity period during which the seller agrees not to talk to other buyers. In the UK, most of a heads of terms document is deliberately non-binding — it sets direction rather than creating a contract — but certain clauses, notably exclusivity, confidentiality and costs, are usually stated to be binding. Signing heads of terms is the point at which a deal becomes real: it frames the due diligence that follows and the sale and purchase agreement that ultimately completes it.
Complementary Terms
Concepts that frequently appear alongside Heads of Terms in practice.
The sale and purchase agreement (SPA) is the definitive contract that transfers ownership of a business from seller to buyer. It sets out the price and how it is paid, the completion mechanism, and the warranties and indemnities the seller gives about the state of the business.
A non-binding expression of interest submitted by a prospective buyer in an M&A process, typically stating the proposed purchase price (or price range), the form of consideration, key assumptions, conditions to completion, and an outline timetable. Indicative offers are submitted after review of the information memorandum and before the buyer is granted access to the full data room for confirmatory due diligence.
A legally binding contract that establishes confidentiality obligations between parties sharing proprietary information. NDAs are essential tools for protecting trade secrets and other sensitive intangible assets during due diligence, partnership discussions, and employee onboarding.
Further Reading
Related FAQ
Prepare the business and its evidence base, agree a valuation view, appoint an adviser, market to a curated buyer list under NDA, negotiate heads of terms, then complete after due diligence.
Read full answer →How long does it take to sell a business?
A well-run sale process usually takes six to twelve months from going to market to completion, but the preparation that determines your price should begin twelve to twenty-four months earlier.
Read full answer →Should I use a business broker or an M&A adviser?
It depends on size and complexity. Business brokers typically suit smaller, simpler sales; corporate finance or M&A advisers suit larger or more complex deals and run a competitive process.
Read full answer →Put this knowledge to work
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