Sale and Purchase Agreement

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.

Warranties and indemnities are the contractual protections a buyer receives from a seller in a business sale. Warranties are statements of fact about the business — that the accounts are accurate, that it owns its assets, that there are no undisclosed disputes — and if a warranty proves untrue the buyer may claim damages for the resulting loss.

A disclosure letter is the document a seller delivers alongside the sale and purchase agreement to qualify the warranties they are giving. Warranties are statements that the business is in a particular condition; the disclosure letter sets out the exceptions — the facts that make a warranty untrue or partly untrue — so that the buyer takes the business knowing about them and cannot later claim for what was disclosed.

A mechanism used in M&A transactions where the final purchase price is adjusted after closing based on the target company's actual financial position — typically net assets, working capital, debt, and cash — as at the completion date. Completion accounts are prepared post-closing and compared against agreed targets, with adjustments settling the difference between estimated and actual values.

An earn-out is a deal structure in which part of the price for a business is deferred and paid only if the business meets agreed performance targets after completion, usually measured over one to three years by revenue, profit or another metric. It bridges a gap in value expectations: the buyer pays more only if the future the seller promised actually materialises, and the seller can capture that upside by staying involved.

A goal-setting framework that defines qualitative objectives and pairs them with measurable key results. OKRs help growth businesses align teams around priorities and track progress against ambitious targets, from product development to revenue growth.

A third-party account established at closing of an M&A transaction to hold a portion of the purchase price (typically 5-15%) for a specified period, providing the buyer with security against potential warranty claims, indemnity obligations, or purchase price adjustments. The escrowed funds are released to the seller upon expiry of the escrow period or resolution of any outstanding claims.

A pricing mechanism in M&A transactions where the purchase price is fixed based on a set of accounts prepared at a specified date prior to completion, with value leakage protections to ensure no value is extracted from the target between the locked box date and closing. Locked box mechanisms provide price certainty and avoid the disputes often associated with completion accounts adjustments.

How to Sell a Business: The UK Owner's Guide

The full sell-side hub: what buyers value, how to prepare, and how to evidence it.

What is the difference between a share sale and an asset sale?

In a share sale the buyer acquires the company itself, including its liabilities; in an asset sale the buyer acquires specified assets and leaves most liabilities behind. The choice has major tax and risk consequences.

What are heads of terms?

Heads of terms is the short document recording the main commercial terms a buyer and seller have agreed in principle — price, structure, earn-out, conditions and exclusivity — before formal contracts are drafted. It is mostly non-binding.

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.