The Deal Risk That Rarely Appears in the Heads of Terms

Corporate transactions often look straightforward at the head of terms stage, but many major risks can be underestimated early on. By the time these issues appear, they can often delay completion, increase costs, or even derail deals altogether.

Experienced legal advisers, such as our team at Glaisyers ETL, can spot these problems early and can make sure your deal goes off without a hitch. 

Heads of Terms Rarely Capture All Material Risk

Heads of terms are commercial summaries, not detailed legal frameworks, they focus on price, structure, and timelines, and are usually non-binding agreements, so expectations can often diverge later on.

Finer details are often left out of the heads of terms. This can cause issues further down the line if deals aren’t looked over by experts who understand the areas that normally cause issues.

Common Issues That Cause Delay Later

There are many areas that if left undefined, can cause issues later on, it’s always best to have an experienced legal adviser check deals for areas that could cause issues.

Below, we’ve listed four areas that often cause transactional headaches unless resolved early-on:

1. 1. Due diligence discoveries: This includes undisclosed liabilities, messy corporate structures, unclear intellectual property ownership, and historic compliance issues.
   2. Governance disputes: This covers board control, veto rights, and minority shareholder protections.
   3. Management incentives: These can cause issues if not properly defined, such as unclear share option plans and disagreements over vesting or performance targets.
   4. Transaction mechanics: For example, accounts disputes, differing earn-out calculations, and working capital adjustments.

The Commercial Cost of Inadequate Early Planning

If left unattended, then the consequences of subpar early planning can be detrimental to any deal you want to finalise. Costly disputes can end up in court, meaning legal fees and penalty costs become astronomical.

Even if courtroom disputes are avoided, if there are disagreements in vital factors of a deal then this can lead to delayed completions, renegotiated terms, and frustration for both parties. In the worst cases, the deal could completely collapse.

This may seem worlds away when you’re first negotiating a deal, but due to the tight timelines that businesses often operate on, small errors can cause huge costs to rapidly appear. If disagreements do arise, it can spell bad news for future deals too, as clients may be put off if you earn yourself a negative reputation.

How Experienced Legal Input Smooths Deal Execution

At Glaisyers ETL, our advisers have years of experience ensuring negotiations run smoothly, and that the terms of dela are completely thought through prior to any concrete negotiations taking place.

We can help with creating a realistic deal structure that covers all necessary areas, while ensuring the heads of terms are both appropriate and profitable for you and your business.

The assistance of competent legal professionals at this stage in the deal will benefit you in the long-term, as it ensures there are fewer surprises and allows the deal to be completed faster too.

The Earlier Risks Are Identified, The Easier They Are to Solve

While deals can take unpredictable turns and it’s never possible to completely guarantee a dispute won’t arise, at Glaisyers ETL, our experts ensure that we ask the difficult questions early on, so that we can stop difficult issues from arising further down the line.

Contact us to discuss how early legal input can protect deal outcomes.