M&A Term Sheet

What is an M&A term sheet?

An M&A term sheet is a short document setting out the preliminary terms on which a buyer and seller intend to complete an acquisition, before the full legal agreement is drafted and signed. It records the deal’s structure, price, and key conditions so both sides can confirm they are genuinely aligned before spending real time and legal cost on a detailed agreement. Most of a term sheet’s provisions are deliberately non-binding, letters of intent to negotiate in good faith toward a deal, not the deal itself, though a small number of specific clauses are typically made binding regardless.

This is a genuinely different document from a venture capital term sheet, and the two get confused often enough that it’s worth stating plainly at the outset: this guide covers the acquisition context, a buyer acquiring a company or its assets, not an investor putting new capital into a company in exchange for equity. If you’re looking for the funding-round version instead, our complete guide to VC term sheet negotiation covers exactly that.

M&A term sheet vs VC term sheet: why the distinction matters

Both documents are short, preliminary, and largely non-binding, which is exactly why they get mixed up. But they govern fundamentally different transactions, with different concerns.

What’s being transferred. An M&A term sheet covers a buyer acquiring an existing company or its assets outright, ownership changes hands entirely, or a controlling stake does. A VC term sheet covers new capital going into a company in exchange for newly issued equity, the company continues operating independently and the founders remain in control.

What the negotiation is actually about. A VC term sheet negotiation centres on valuation caps, liquidation preferences, board composition, and protective provisions for the incoming investor. An M&A term sheet negotiation centres on purchase price and structure, what liabilities the buyer is and isn’t taking on, and the conditions that need to be satisfied before the deal can actually close.

What follows it. A VC term sheet leads to a share subscription agreement and an updated shareholders’ agreement. An M&A term sheet leads to either an Asset Purchase Agreement or a Share Purchase Agreement, depending on how the deal is structured, both of which this term sheet is specifically designed to lead into.

Key clauses an M&A term sheet should include

Transaction structure. Whether the deal is structured as an asset purchase, a share purchase, or a merger, since this decision shapes almost everything that follows, including tax treatment, liability exposure, and which contracts and consents are actually needed to close.

Purchase price and structure. The proposed price, and how it will actually be paid, cash at closing, seller financing, an earn-out tied to future performance, or a combination. Where any portion of the price is contingent or deferred, the term sheet should at least flag the mechanism, even if the detailed formula is left to the definitive agreement.

Key assumptions and adjustments. Any working capital, net debt, or other adjustment mechanism the parties expect to apply between signing and closing, flagged early so it isn’t a surprise once the definitive agreement is being drafted.

Due diligence access. The seller’s commitment to give the buyer reasonable access to the company’s books, contracts, and personnel to conduct due diligence, and the expected timeframe for that process. Our guide on the contract clauses that quietly slash valuation during due diligence covers exactly what a buyer’s team is looking for during this window.

Exclusivity (no-shop). A binding commitment from the seller not to solicit, negotiate, or accept a competing offer for a defined period while the buyer completes due diligence and negotiates the definitive agreement. This is one of the handful of clauses that is deliberately binding even though the rest of the term sheet is not, since the buyer is investing real time and cost on the strength of it.

Confidentiality. A binding obligation covering the existence and terms of the discussions themselves, not just the underlying business information exchanged during diligence. Our complete NDA guide covers structuring this properly, and in practice a standalone NDA is often signed even before the term sheet itself.

Conditions precedent. The specific conditions that need to be satisfied before the deal can close, regulatory or competition authority approval, third-party consents to assign key contracts, financing being secured, and satisfactory completion of due diligence.

Expense allocation. A binding statement that each party bears its own legal and advisory costs regardless of whether the deal actually closes, which avoids a dispute over sunk costs if the transaction falls through.

Timeline. A target timeframe for due diligence, negotiation of the definitive agreement, and closing, non-binding, but useful for keeping both sides genuinely moving rather than drifting.

Binding vs non-binding statement. An explicit clause stating which specific provisions, typically exclusivity, confidentiality, expenses, and governing law, are binding, and confirming that everything else is a statement of intent only, not an enforceable obligation to actually complete the transaction. Leaving this ambiguous is one of the more common and consequential drafting mistakes in a term sheet, since a court can find an entire term sheet binding if the parties’ intent on this point was never made explicit.

Governing law and dispute resolution. Which jurisdiction’s law governs the term sheet itself, particularly relevant for the binding provisions. Our guide on arbitration versus litigation in cross-border contracts covers this choice for the eventual definitive agreement too.

Regulatory approval as a condition precedent

A term sheet for a sufficiently large deal should flag competition or antitrust approval as an explicit condition precedent, not something addressed for the first time in the definitive agreement, since knowing early whether a deal will need regulatory clearance shapes the whole negotiation timeline.

United States. Under the Hart-Scott-Rodino Antitrust Improvements Act, sufficiently large acquisitions must be reported to the Federal Trade Commission and the Department of Justice before closing, with a mandatory waiting period. As of February 2026, the core size-of-transaction threshold is $133.9 million, adjusted annually.

United Kingdom. The Competition and Markets Authority can review a transaction where the target’s UK turnover exceeds a defined threshold, or where the deal would result in a 25% or greater share of supply of particular goods or services in the UK.

European Union. The EU Merger Regulation requires notification to the European Commission where the combined worldwide turnover of the parties, and the EU-wide turnover of at least two of them, exceed defined thresholds.

India. Where a transaction qualifies as a “combination” under Section 5 of the Competition Act, 2002, prior notification to and approval from the Competition Commission of India is required. A de minimis exemption currently applies below approximately Rs 450 crore in target assets or Rs 1,250 crore in turnover, with a separate deal value threshold applying above roughly Rs 2,000 crore where the entity has substantial India operations, regardless of the asset and turnover position.

Where this fits with your other M&A documents

A term sheet is the starting point, not the finish line. Once the structure is agreed, our guides on the Asset Purchase Agreement and the Share Purchase Agreement cover the definitive agreement each structure leads into, including the detailed representations, warranties, and indemnification provisions a term sheet only gestures toward. Our guide on the contract clauses that quietly slash valuation during due diligence is worth reading during the diligence window this term sheet opens up, and our broader business contracts guide covers the underlying drafting discipline this document depends on.

Frequently asked questions

Is an M&A term sheet legally binding?

Mostly not, but not entirely. The commercial terms, price, structure, and timeline, are typically expressed as non-binding statements of intent. A small number of specific provisions, most commonly exclusivity, confidentiality, and expense allocation, are usually made explicitly binding. The term sheet should state clearly which provisions fall into which category, since leaving this ambiguous risks a court treating the entire document as binding.

What is the difference between an M&A term sheet and a VC term sheet?

An M&A term sheet covers a buyer acquiring an existing company or its assets outright. A VC term sheet covers new investment capital going into a company in exchange for newly issued equity, with the company continuing to operate independently. The negotiation focus, purchase price and deal structure versus valuation and investor protections, differs accordingly.

What is a no-shop or exclusivity clause, and why is it usually binding?

A no-shop or exclusivity clause is the seller’s commitment not to solicit or negotiate competing offers for a defined period while the buyer conducts due diligence and negotiates the definitive agreement. It is typically made binding, unlike most of the term sheet, because the buyer is investing genuine time and legal cost on the strength of that exclusivity, and would have little protection against the seller shopping the deal elsewhere without it.

Does a term sheet need to specify asset purchase or share purchase?

Yes, ideally as early as possible, since the structure shapes almost every other term that follows, from tax treatment to which liabilities the buyer assumes to which consents are needed to close. Deciding this at the term sheet stage, rather than leaving it open, avoids a significant renegotiation once the definitive agreement is being drafted.

What happens after an M&A term sheet is signed?

The buyer typically conducts due diligence during the exclusivity period, and the parties negotiate and sign a definitive agreement, an Asset Purchase Agreement or a Share Purchase Agreement depending on the structure agreed, which contains the detailed, fully binding terms the term sheet only outlined.

Need an M&A term sheet drafted for your specific deal?

A template is a starting point, not a finished document. Getting the binding-versus-non-binding distinction right, and structuring exclusivity and conditions precedent properly, needs to be tailored to your specific transaction. My Legal Pal drafts and reviews M&A term sheets and the definitive agreements that follow them for businesses across India and internationally.

Get Your M&A Term Sheet Drafted at MyLegalPal.com, or speak to our contract lawyers in India, the USA, or the UK about your specific deal. Our contract review service can also assess a term sheet you’ve already been sent before you sign it. You can also download the free M&A Term Sheet template as a starting point, and see our Asset Purchase and Share Purchase Agreement templates for what typically comes next.