Head of Terms

A Head of Terms (HoT), sometimes called Heads of Agreement, is the document summarising the key commercial and legal conditions of an M&A transaction before the SPA is drafted. It is the preferred terminology in UK and other Common Law M&A practice, where French practice instead refers to a letter of intent (LOI) and American practice to a term sheet (a term that, in Franco-Swiss practice, is mostly reserved for fundraising rounds). Substantively, these three documents play an equivalent role: fixing, ahead of due diligence and the definitive negotiation, the envisaged price, the scope of the transaction and the timeline, without contractually binding the parties on the substance of the deal.

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A Head of Terms is in principle non-binding on price or on any commitment to complete the transaction, but certain clauses are made expressly binding from signature: exclusivity of negotiation, confidentiality, cost allocation if the deal fails, and sometimes a non-solicitation clause covering key personnel. This distinction between binding and non-binding clauses must be stated unambiguously in the document itself; otherwise a court may requalify the whole document as a binding commitment based on the parties' actual conduct.

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A Head of Terms generally precedes due diligence and negotiation of the definitive SPA. Its negotiation covers the indicative price or valuation range, the scope of assets or shares being transferred, the suspensive conditions envisaged, the length of the exclusivity period, and the expected timeline through to closing, including an indicative Long Stop Date where relevant. Its relative brevity compared with the SPA makes it a fast way to confirm both parties share the same negotiating basis before committing to due diligence costs.

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Example: a Swiss acquirer signs a Head of Terms with a French seller for the acquisition of 100% of the shares of an industrial SME, based on an indicative enterprise value of CHF 22.0 million, subject to the findings of financial and legal due diligence. The document provides for a 60-day exclusivity period and cost allocation borne by each party if negotiations fail. Only these two clauses are binding; price and scope remain indicative until the SPA is signed.

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At Hectelion, we draft and negotiate Heads of Terms and letters of intent in our M&A advisory mandates across France and Switzerland, with careful attention to drafting precise binding clauses.