The term sheet has been a staple of the M&A process for as long as companies have been buying and selling each other. This article covers everything you need to know about post-term sheet diligence, from how the process works to why it’s important.
The concept remains the same, though: an agreement outlining the terms under which a buyer will purchase a target company’s equity or equity in a subsidiary. This blog is about Post-term Sheet Diligence.
What Is Post-term Sheet Diligence?
Post-term sheet diligence is the process of evaluating a target company’s financial and operational condition after the term sheet has been signed. M&A attorneys generally want to make sure that the target company has been able to complete all of the terms of the term sheet once it becomes final. This includes
- Negotiating a definitive agreement
- Conducting due diligence
- Obtaining board approval
- Completing other tasks.
It lets you know if your target company has been able to deliver on its commitments and meet your expectations in order for the transaction to go through.
What Is the Significance?
It is important for a number of reasons.
- First, it’s important because the agreement may not be exactly what you expect. Changes are sometimes made to the term sheet after it’s signed
- In addition, it allows you to assess whether the company and its management team have what it takes to execute on their promises
- Lastly, it ensures that no potential issues are missed in the process.
Post-term sheet diligence is an important process in an M&A deal because it gives companies a chance to review the information they’ve acquired during negotiations and prepare for closing. Post-term sheet diligence also helps identify any potentially hidden liabilities in the target company. So, post-term sheet diligence is important because it ensures that you know everything you need to know about the target company before you close on the deal. It’s also important because it provides a final opportunity to work out any problems in a deal before it’s closed.
How Is It Conducted?
It is conducted at the discretion of the buyer. The buyer has the option to conduct a post-term sheet diligence investigation as part of their due diligence process before signing off on an acquisition agreement. In addition, the seller may elect to conduct post-term sheet diligence as part of their contractual obligations if they believe that certain material facts about the company or target company have changed since negotiating the term sheet.
Since post-term sheet diligence is conducted according to the discretion of both parties, it can last for a limited time frame or until all relevant information is gathered. Post-term sheet diligence is focused on gathering additional information about terms and conditions relating to an acquisition agreement as well as any changes in relevant facts. It also includes obtaining additional financial and business data on businesses and targets with which agreements are being negotiated.
Post-term should be performed on a more frequent basis than the term sheet agreement. This is because the term sheet is an outline of the initial terms that have been agreed upon by both parties. Therefore, while the term sheet will indicate what information is needed from each party in order to close on the transaction, the actual steps required to close on a deal are often more complicated and may require multiple trips back and forth between parties. The costs of performing post-term sheet diligence can vary depending on your approach to doing it. There are four main approaches:
- Full term sheet review
- Review of key terms
- Document review only
- Document review
- Followed by a full term sheet review.
The Key Questions You Need to Ask
An important part of the M&A process, and it’s one of the most challenging parts. It can be an overwhelming process for both buyers and sellers. To make post-term sheet diligence easier for everyone, you need to ask the right questions.
Here are some questions you should consider asking during post-term sheet diligence:
- What is my company worth
- How much debt does my company have
- How many customers are there
- How long has it been since we released our last quarterly earnings report?
Tips for Conducting Efficient and Effective
There are few tips while you go ahead:
- First, your team will want to get a head start on the research by reviewing the target company’s financial statements and conducting their own due diligence
- Second, any discussions with the target company should be recorded so that they can be used as evidence in later stages of the negotiation or lawsuit
- Finally, analyze how the target company’s cash flows work and make sure that you understand if it has other assets or businesses that might have value.
Post-term sheet diligence is one of those checks that help ensure that everything went smoothly from the beginning to the end of a deal. It also helps protect you as an investor if something goes wrong down the line.
After a term sheet is signed, there may be an opportunity for post-term sheet diligence which is the process of reviewing and assessing the terms of the initial term sheet, analyzing financial conditions, including a review of industry trends, and projecting future cash flows.