Guide to Acquiring a Business
Heads of Agreement and Due Diligence
Once agreement in principle has been reached, a 'Heads of Agreement' is likely to be entered into between you and the sellers. This is a document that is largely 'subject to contract' – i.e. it is not binding in itself but sets out the parameters of the main terms of the agreement in principle that has been reached.
These terms are likely to include the following:
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The main agreement as to price – e.g. in terms of cash, shares or loan note payments, including details of any “earn-out” or other forms of variable or deferred payments.
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A clause providing that you will be given a period of exclusivity (for, say, two months) during which the sellers agree not to discuss or negotiate a sale with any other potential purchaser.
Details of any non-competition restrictions to be entered into by the sellers in relation to a period of time following completion of the sale.
At this point, the due diligence process is likely to commence, with you and your team of advisers (lawyers, accountants, tax advisers and other professional advisers as appropriate) carrying out detailed investigations in order that you can satisfy yourself, so far as you are able to do so, that there are no unidentified problems attached to the business being sold.