---

name: draft-term-sheet-acquisition
description: Use when drafting a non-binding term sheet for a full or majority-stake acquisition — setting out the transaction structure, purchase price mechanics (cash, earn-out, escrow), conditions precedent, representations and warranties scope, exclusivity period, and break provisions. Covers the principal negotiation axes (purchase price structure, escrow %, MAC definition, R&W cap) and the follow-on document chain to the definitive SPA. Addresses MENA-specific regulatory approval and foreign investment considerations.
license: MIT
metadata:
id: draft.term-sheet-acquisition
category: draft
practice_area: corporate
jurisdictions: [UAE, DIFC, ADGM, KSA, LB, UK, EU, US, GCC]
priority: P0
intent: [acquisition term sheet, loi, letter of intent, m&a, indicative offer, exclusivity]
related: [draft-share-purchase-agreement, draft-asset-purchase-agreement, draft-nda-mutual, draft-shareholders-agreement, review-spa-buyer-side]
source: Louis — HAQQ Legal AI (github.com/sboghossian/mini-claude-for-legal)
version: "1.0"

Acquisition Term Sheet

An acquisition term sheet (also called a Letter of Intent or LOI) is the first formal document in an M&A process — it aligns Buyer and Seller on the material commercial terms before either side incurs the cost of a full due diligence exercise and definitive documentation. The binding/non-binding distinction is critical: if drafted carelessly, certain provisions can unintentionally bind the parties.

When to use this

• Following initial commercial negotiations where both parties have reached substantive agreement on headline terms
• As a prerequisite to commencing due diligence (particularly when access to confidential information is to be shared)
• As the foundation document for the definitive Share Purchase Agreement or Asset Purchase Agreement
• As a pre-cursor to regulatory filings where regulators require a signed LOI before reviewing an application

Required inputs

Input	Why it matters	Default
Buyer + Seller (full legal names and capacities)	Determines who is bound by the binding provisions	Must provide
Target company (name, jurisdiction)	Subject matter of the transaction	Must provide
Transaction structure	Share purchase / asset purchase / merger / reorganization	Must specify — affects tax treatment and regulatory requirements significantly
Consideration	Amount and structure (cash / shares / mix / earn-out)	Must specify
Closing conditions	What must happen before the deal closes	Regulatory approval + due diligence satisfactory + no MAC at minimum
No-shop / exclusivity period	Duration and scope	30–60 days standard
Confidentiality	Is a separate NDA in place? If not, include here	Binding; mutual

Optional inputs

• Reverse break fee (if Buyer walks without cause)
• Target break fee (if Seller accepts a competing offer during exclusivity)
• Management retention terms (if key employees are critical)
• Earn-out high-level mechanics (if earn-out is part of the consideration)
• Governing law for the term sheet itself (binding provisions)

Document Structure

1. Parties and Purpose

One paragraph identifying Buyer, Seller, and Target; purpose: the parties wish to record the principal terms upon which Buyer proposes to acquire [Target] from Seller. State that the term sheet is subject to the satisfactory completion of due diligence and execution of definitive documentation.

2. Transaction Structure

Specify clearly whether this is:

• Share purchase: Buyer acquires legal and beneficial title to all/majority of the shares; Target company survives with all its history (liabilities included)
• Asset purchase: Buyer acquires specified assets and liabilities; Target remains as an entity but without the acquired assets; cleaner liability picture but more complex to structure
• Merger: legal amalgamation; typically requires regulatory process; less common in MENA

The choice has major tax consequences:

• Share purchase: no transfer of assets for VAT purposes; stamp duty / transfer taxes on the shares
• Asset purchase: VAT may apply to the transfer of business assets; potential for asset stepped-up basis (favorable for Buyer)
• In UAE onshore and KSA, obtaining professional tax advice before committing to structure is essential given VAT (5% UAE; 15% KSA) and corporate tax implications

3. Purchase Price and Payment Mechanics

Component	Description	Notes
Cash at close	Payment on the closing date in cleared funds	Wire to designated account in cleared funds
Deferred consideration	Amount payable after closing on agreed terms	Secured? Unsecured?
Earn-out	Performance-contingent amount tied to Target's post-closing results	Define metrics, measurement period, and cap
Escrow	Portion of purchase price held by escrow agent for a period post-close	Typically 10–15% for 12–24 months as recourse for warranty claims
Working capital adjustment	Price adjusted post-close to reflect actual vs target working capital	Define working capital for purposes of adjustment; provide sample calculation

4. Working Capital Adjustment Mechanism

If a working capital adjustment is included:

• Define "Working Capital" precisely (current assets minus current liabilities; specify what is and is not included)
• Set a target working capital amount (based on historical average)
• Process: Seller prepares an estimated working capital statement at close; Buyer prepares a final working capital statement within 60 days post-close; disputes to an independent accountant
• Adjustment: if actual working capital > target, Buyer pays the excess; if actual < target, Seller returns the shortfall

5. Conditions Precedent

List conditions that must be satisfied before the parties are obliged to close. Common conditions:

• Regulatory approvals: competition clearance (if applicable), FDI/foreign investment approval, sector-specific regulatory approvals (KSA CMA, UAE CBUAE/TDRA/ADGM FSA depending on sector)
• Third-party consents: material contracts with change-of-control provisions that require consent to assignment
• Shareholder approvals: if Seller's corporate constitution requires shareholder approval for the disposal
• Due diligence: satisfactory completion of Buyer's due diligence (due diligence condition should be either removed or defined with a materiality threshold — an open-ended "satisfactory due diligence" condition creates a subjective out)
• No Material Adverse Change (MAC): definition matters enormously; typical MENA practice:
  • MAC = a change that has or would reasonably be expected to have a material adverse effect on the Target's business, financial condition, or results of operations
  • Carve-outs: general economic conditions, industry-wide events, changes in law, pandemic-related events (heavily negotiated post-COVID)
• Employee retention: key employees have signed offer letters for continued employment post-close

6. Representations and Warranties Scope (High-Level)

State at a high level that Seller will make customary representations and warranties in the SPA covering:

• Title and authority
• Financial statements accuracy
• Absence of undisclosed liabilities
• Compliance with law
• Material contracts and no material breach
• Intellectual property ownership
• Employment — no undisclosed severance commitments
• Tax — returns filed; no outstanding disputes
• No material litigation

The detail will be set out in the SPA; the term sheet signals the scope and the indemnification framework.

7. Indemnification Framework

Parameter	Indicative range	Notes
R&W cap (general)	10–30% of consideration	Stated as a % range; exact % negotiated in SPA
R&W cap (fundamental)	100% or full consideration	Title, capacity, fraud
Aggregate basket	0.5–1.5% of consideration	Threshold before claims can be brought
Survival — general warranties	18–36 months from close
Survival — tax warranties	7 years from close	Matches most MENA limitation periods for tax

8. Restrictive Covenants on Seller

• Non-compete: Seller and key individuals shall not compete for [2 years] in [geographic scope]; confirm this is appropriate for the jurisdiction
• Non-solicitation: no poaching of Target's customers or key employees for [2 years]
• Seller should confirm that these covenants, combined with any existing employment restrictions, are enforceable under the governing law

9. Key Employee Retention

If Buyer is relying on specific management to continue, state:

• Key employees to be identified and offer letters executed before close
• Retention period and terms (salary, benefits, equity rollover)
• Whether key employee retention is a condition precedent to closing

10. Termination Rights

Right	Trigger	Consequence
Either party — longstop date	If closing has not occurred by [date]	Terminates term sheet; expenses remain allocated per below
Buyer — MAC	Material adverse change in Target	Buyer may terminate; no break fee
Buyer — due diligence failure	Materially adverse due diligence finding (if DD condition included)	Buyer may terminate; no break fee
Seller — competing offer	Seller accepts a competing offer during exclusivity	Seller pays break fee if applicable

11. Exclusivity / No-Shop Period

Duration: 30–60 days from execution of the term sheet.

Scope: Seller shall not, and shall procure that Target and its representatives shall not, directly or indirectly: (a) solicit, initiate, or encourage any competing acquisition proposal; (b) provide information to any third party in connection with a competing proposal; or (c) enter into discussions or negotiations regarding a competing proposal.

This is the most commercially important binding provision in the term sheet.

12. Expenses and Break Fee

• Each party bears its own costs in connection with the transaction (standard)
• Break fee (if agreed): payable by [Seller/Buyer] if [trigger condition] occurs; amount typically 1–3% of the purchase price
• Reverse break fee (payable by Buyer for regulatory failure or financing failure): more common in public M&A; negotiate in private deals where regulatory approval is uncertain

13. Binding vs Non-Binding Provisions

Non-binding: all transaction terms (structure, price, conditions, warranties scope, restrictive covenants) — these are subject to negotiation and definitization in the SPA.

Binding: the following are legally binding from execution:

• Exclusivity / no-shop (critical)
• Confidentiality
• Break fee provisions (if included)
• Governing law for the term sheet itself
• Expenses allocation

State this clearly: "Sections [X] (Exclusivity), [Y] (Confidentiality), and [Z] (Expenses) are intended to be legally binding. All other provisions of this Term Sheet are non-binding and subject to negotiation and execution of definitive documentation."

14. Governing Law and Dispute Resolution

The binding provisions of the term sheet (exclusivity, confidentiality) should specify a governing law and a dispute resolution mechanism. Arbitration is preferred for MENA cross-border transactions.

MENA-Specific Considerations

Regulatory approval timelines

MENA regulatory approvals can be significant:

• UAE competition authority (CECO) notification: if merger notification thresholds are met
• Sector-specific: ADGM FSA, DIFC FSA, UAE TDRA, KSA CMA — each has its own process and timeline (typically 30–90 days minimum)
• Foreign ownership approvals (ADIO in Abu Dhabi, MISA in KSA): particularly for sensitive sectors
• Build realistic closing timelines; experienced MENA M&A counsel should advise on regulatory risk early

No-shop: Arabic-language contract

If the Seller is a KSA or UAE onshore entity and the term sheet is in English only, confirm that the binding no-shop and confidentiality provisions will be enforceable. Consider having the binding provisions clause included in both English and Arabic with a consistency statement.

Document Follow-Up Chain

Term Sheet (signed)
    ↓
Due Diligence (financial, legal, tax, technical)
    ↓
Disclosure Schedule preparation (Seller)
    ↓
Definitive SPA (see [[draft-share-purchase-agreement]])
    ↓
Ancillary documents (escrow agreement, transitional services, employment offers)
    ↓
Regulatory filings and approvals
    ↓
Closing

Related skills

• [[draft-share-purchase-agreement]]
• [[draft-asset-purchase-agreement]]
• [[draft-nda-mutual]]
• [[draft-shareholders-agreement]]
• [[review-spa-buyer-side]]