The Business Acquisition Term Sheet is a crucial document in South African M&A practice, typically used in the initial stages of a business acquisition to document the parties' preliminary understanding of key transaction terms. It serves as a roadmap for the transaction and subsequent detailed agreements, covering essential elements such as purchase price, payment structure, conditions precedent, and timing. While predominantly non-binding, certain provisions like confidentiality and exclusivity are usually binding. The document must consider South African specific requirements including Companies Act compliance, Competition Commission thresholds, B-BBEE implications, and exchange control regulations for foreign investors. It forms the basis for due diligence investigations and the drafting of definitive agreements.
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1. Parties: Identification of the buyer, seller, and target business with their full legal names and registration details
2. Background: Brief context of the proposed transaction and the current status of the target business
3. Definitions: Key terms used throughout the term sheet
4. Transaction Structure: Type of transaction (share sale/asset sale), percentage being acquired, and basic structure
5. Purchase Price: Proposed purchase consideration, including payment structure and timing
6. Payment Terms: Details of how and when payments will be made, including any earnout or deferred payment mechanisms
7. Key Conditions Precedent: Essential conditions that must be met before the transaction can proceed
8. Due Diligence: Scope and timeline for due diligence investigation
9. Exclusivity: Terms and duration of exclusive negotiation period
10. Confidentiality: Binding provisions regarding confidential information
11. Costs: Allocation of transaction costs between parties
12. Timeline: Proposed schedule for key transaction milestones
13. Binding Nature: Clarification of which provisions are binding and non-binding
1. Management and Employment: Include when there are specific arrangements for key management retention or employment terms
2. Regulatory Approvals: Include when transaction requires specific regulatory approvals (e.g., Competition Commission)
3. Post-Closing Covenants: Include when specific post-closing obligations need to be highlighted
4. Earn-out Mechanisms: Include when part of purchase price is contingent on future performance
5. Intellectual Property: Include when IP is a crucial element of the transaction
6. B-BBEE Considerations: Include when transaction impacts B-BBEE status or requirements
7. Break Fee: Include when parties agree to compensation if deal fails under specific circumstances
8. Financing Conditions: Include when purchase is subject to buyer obtaining financing
1. Purchase Price Calculation: Detailed breakdown of purchase price components and calculations
2. Key Assets Schedule: List of material assets included in transaction (for asset sales)
3. Material Contracts: List of key contracts requiring attention or assignment
4. Key Personnel: List of key employees and proposed terms
5. Transaction Timeline: Detailed timeline with key dates and milestones
6. Due Diligence Checklist: Preliminary list of required due diligence items
7. Excluded Assets/Liabilities: Schedule of assets or liabilities specifically excluded from the transaction
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