What are heads of terms?

Full Explanation

Heads of terms, also called a letter of intent, is the point at which a business sale becomes real. It is a short document that captures what the parties have agreed in principle: the headline price, whether the deal is a share sale or an asset sale, any earn-out or deferred element, the conditions that must be satisfied to complete, and an exclusivity period during which the seller stops talking to other buyers. Most of the document is deliberately non-binding — it is subject to contract — so that either side can still walk away, but certain clauses are usually binding once signed, notably exclusivity, confidentiality and who bears costs. Signing heads of terms sets the agenda for everything that follows: it frames the due diligence the buyer will run and the sale and purchase agreement that ultimately completes the deal. Getting the key points right here, including how any earn-out will be measured, saves difficult renegotiation later. For where heads of terms sit in the timeline, see the [business sale process](/insights/business-sale-process-explained) and the [heads of terms](/intangibles/glossary/heads-of-terms) definition.

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