STAGE 4 -
OFFERS & HEADS OF AGREEMENTS
How do you progress the opportunity without getting ahead of yourself?
How do you progress the acquisition without getting ahead of yourself?
You have explored the opportunity, gathered initial information and considered whether there appears to be a realistic funding pathway.
The next stage is where discussions may begin to become more formal.
You may be asked to:
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make an offer;
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submit an Expression of Interest;
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sign a Heads of Agreement;
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agree key commercial terms;
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enter exclusivity;
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pay a deposit; or
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work towards a proposed settlement date.
This can feel like the point where the acquisition starts becoming real. But important work may still remain.
Finance may not yet be approved. Due diligence may not be complete. Your solicitor may still need to review the proposed terms and documents.
The objective at this stage is not simply to “secure the deal”.
It is to progress the opportunity in a way that allows enough room for finance, due diligence and legal work to continue properly.
1. Understand what you are being asked to do or sign
Different transactions progress in different ways.
You may be asked to submit an informal offer by email. In another transaction, the business broker may provide an Expression of Interest template.
Or you may instead receive a Heads of Agreement, Letter of Intent or Term Sheet setting out the proposed commercial terms.
These documents can serve different purposes. They may deal with matters such as:
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purchase price;
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what is being acquired;
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proposed payment structure;
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settlement date;
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due-diligence period;
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finance;
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exclusivity;
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deposit;
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vendor handover; and
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other conditions.
Early-stage documents can have different names. They can be called:
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Expression of Interest;
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Offer;
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Letter of Intent;
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Heads of Agreement;
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Term Sheet; or
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Exclusivity Agreement.
At this stage, do not assume that every document has the same effect simply because it appears early in the transaction. A document described as “indicative”, “preliminary” or “non-binding” may still contain provisions intended to have legal effect.
Do not assume that a document is harmless simply because it is described as “indicative” or “non-binding”.
Your solicitor should advise you on the legal effect of anything you are asked to sign.
SUGGESTED DEEP-DIVE ARTICLE >
Expression of Interest vs Heads of Agreement When Buying an Accounting Practice
2. Make sure the commercial proposition is clear
By this stage, the broad commercial structure may start taking shape. Before progressing an offer, try to understand the transaction you are actually proposing. The headline purchase price is only one part of it.
You might need to also consider:
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what is included in the sale (e.g. whether you are buying the whole practice or only selected clients);
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settlement timing;
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vendor handover (how long the vendor will remain);
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treatment of WIP and debtors;
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staff arrangements;
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vendor finance;
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deferred payment consideration; and
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retention or clawback arrangements.
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when settlement is expected to occur.
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what assets are included;
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whether premises are involved;
These details may not all be finalised at Stage 4. But the broader commercial structure should be becoming clearer.
This matters because changes to the transaction can affect more than the negotiation with the vendor. They can also change:
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the amount of finance required;
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the buyer contribution;
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cash required at settlement;
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future payment obligations; and
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how a lender assesses the transaction.
The purpose is not necessarily to resolve every detail. It is to make sure the proposed transaction is sufficiently clear for the next stage of work
SUGGESTED DEEP-DIVE ARTICLE >
What Should You Clarify Before Making an Offer on an Accounting Practice?
3. Consider what should still remain conditional
An offer does not necessarily mean that every investigation has been completed. At Stage 4, you may still need time to work through matters such as:
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finance;
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due diligence;
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legal review;
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client information;
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staff information;
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lease or premises matters;
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transaction documents;
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other transaction-specific issues.
That is why offers and early agreements are often discussed alongside conditions. A condition may allow the transaction to progress while giving the buyer time to complete certain work before becoming fully committed.
For example, a proposed acquisition may be discussed as being subject to satisfactory finance or due diligence. The appropriate wording, legal effect and protection provided by those conditions should be considered with your solicitor.
From a finance perspective, the important point is simple:
Do not assume that an early finance discussion is the same as formal lender approval or an approved loan..
SUGGESTED DEEP-DIVE ARTICLE >
Should an Offer Be Subject to Finance When Buying an Accounting Practice?
4. Give the finance process enough time
One of the practical risks at this stage is allowing the commercial negotiations and timetable to move faster than the finance process.
A vendor or business broker may propose:
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a short finance period;
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a quick settlement;
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rapid document signing; or
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early removal of conditions.
Those dates may make sense from the vendor's perspective.
But they should also be considered against what still needs to happen.
Depending on the transaction, the finance process may require time to:
Before agreeing to a finance deadline, consider whether there is enough time to:
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gather the required information;
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assess the transaction properly;
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clarify financial figures;
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assess the buyer and the acquisition;
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determine the appropriate funding structure;
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identify an appropriate lender;
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prepare the application;
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respond to lender questions;
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complete lender assessment;
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answer follow-up questions;
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obtain formal approval;
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satisfy credit conditions; and
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complete documentation.
A deadline that looks reasonable commercially may not always be realistic from a finance perspective.
Not every transaction requires the same amount of time. But agreeing to a finance deadline without understanding what remains to be done can create unnecessary risks and problems later.
SUGGESTED DEEP-DIVE ARTICLE >
How Long Should You Allow for Finance When Buying an Accounting Practice?
5. Understand the difference between preliminary support and actual finance approval
At Stage 3, Fairlane may have formed an initial view about whether a realistic funding pathway appears to exist. But it must not be confused with formal lender approval.
There can be several stages between an early finance discussion and settlement, such as:
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Preliminary review: Fairlane considers the acquisition, buyer and available information.
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Funding strategy: Potential structures and lenders are considered.
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Application: Information is submitted to a lender for formal assessment.
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Credit assessment: The lender conducts its own review and may ask further questions.
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Approval: The lender may approve the facility, usually subject to specified conditions.
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Documentation and settlement: Conditions are satisfied, documents are completed and funds are prepared for settlement.
An encouraging position at the beginning of this process does not guarantee the outcome at the end.
This distinction becomes particularly important before agreeing to remove a finance condition or otherwise committing to proceed.
SUGGESTED DEEP-DIVE ARTICLE >
Why Preliminary Finance Support Is Not Loan Approval
6. Seek professional advice before paying any deposit
You may be asked to pay money as part of:
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an offer;
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Heads of Agreement;
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exclusivity arrangement; or
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proposed contract.
Before paying a deposit or other amount, understand exactly what is being requested. You might want to ask questions such as:
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How much is payable?
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When is it payable?
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Who will hold the money?
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Is it held in trust?
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Is it refundable?
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Under what circumstances can it be returned?
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What happens if finance is not approved?
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What happens if due diligence identifies a problem?
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What happens if the vendor withdraws?
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What happens if the buyer decides not to proceed?
Do not assume that money will automatically be refundable simply because the acquisition is still at an early stage.
Your solicitor should advise you before you make a payment where legal rights or obligations may arise.
SUGGESTED DEEP-DIVE ARTICLE >
Deposits When Buying an Accounting Practice: What Should You Ask Before Paying?
7. Understand Exclusivity
As the transaction progresses, you may want the vendor to stop negotiating with other potential buyers while you invest further time and money investigating the practice.
This is generally referred to as exclusivity.
An exclusivity period can give the buyer time to progress:
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due diligence;
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finance;
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legal documentation; and
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transaction planning
without the practice being actively negotiated with another buyer during that period.
But exclusivity arrangements can differ considerably.
Before agreeing to one, understand:
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how long the exclusivity period lasts;
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when the period starts and finishes;
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what the vendor is agreeing not to do;
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what the buyer is expected to do;
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whether any payment is required;
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whether deadlines apply; and
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what happens if the transaction does not proceed.
Also consider whether the exclusivity period provides enough time for the work you actually need to complete.
SUGGESTED DEEP-DIVE ARTICLE >
Exclusivity When Buying an Accounting Practice: What Does It Mean for the Buyer?
8. Keep your Acquisition Finance Advisor informed when the transaction change
The transaction the Acquisition Finance Advisor initially reviewed may not be the transaction that is ultimately agreed.
The transaction might be impacted by:
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change in the purchase price;
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change in the deposit;
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change in settlement date and conditions;
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introduction of vendor finance;
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deferred consideration;
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change in the assets being acquired;
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change in buyer entity or structure; or
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additional conditions that may be negotiated.
These changes may affect the funding position.
For example, introducing vendor finance may reduce the bank funding required at settlement, but it may also create additional future repayment obligations.
Likewise, an increase in the purchase price may affect both the required loan and the buyer's contribution.
If our team has already considered the acquisition, keep us informed of material changes as negotiations progress.
SUGGESTED DEEP-DIVE ARTICLE >
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What Happens if the Purchase Price Changes After Finance Has Been Discussed?
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What Happens if Vendor Finance Is Introduced After the Initial Funding Review?
9. Know when to involve your solicitor
Stage 4 is one of the points in the acquisition where the distinction between advisers becomes particularly important.
A business broker may facilitate discussions between the buyer and vendor.
Our team, as your Acquisition Finance Advisor can help you understand the finance process and how proposed commercial terms may interact with funding.
Your accountant may assist with financial and tax matters.
But when you are being asked to sign documents, pay money, accept contractual obligations or waive rights, your solicitor should advise you on the legal consequences.
This may include situations where you are considering:
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an offer;
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Expression of Interest;
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Heads of Agreement;
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exclusivity agreement;
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deposit;
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sale contract;
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finance condition;
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due-diligence condition; or
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waiver of a condition.
Acquisition finance advisors can explain where finance sits within the transaction, but they cannot determine the legal effect of the documents you sign.
SUGGESTED DEEP-DIVE ARTICLE >
When Should You Involve Your Solicitor When Buying an Accounting Practice?
10. Keep the workstreams moving together
At this stage, several parts of the acquisition may be progressing at the same time.
Purchase / Commercial
You and the vendor are working towards agreement on price, structure, timing and other commercial terms.
Due Diligence
You and your advisers may still be examining the financial, operational and commercial aspects of the practice.
Legal
Your solicitor may be reviewing the proposed commitments, conditions and transaction documents.
Finance
Your Acquisition Finance Advisors may be developing the funding strategy, obtaining further information or preparing the acquisition for lender assessment.
These workstreams are connected. A change in one can affect another.
For example:
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A higher purchase price may change the required funding.
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A shorter settlement period may place pressure on the finance timetable.
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A due-diligence finding may change the commercial terms.
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A change in payment structure may need to be reconsidered by the lender.
The objective is not to finish each workstream independently.
It is to keep them sufficiently aligned as the transaction moves forward.
STAGE 4
RESOURCES
1. Offer / Heads of Agreement Preparation Guide >
A practical guide to help you organise the key commercial matters before progressing an offer, Expression of Interest or Heads of Agreement.
2. Questions to Ask Your Solicitor >
A practical question list covering early commitments, conditions, deposits, exclusivity and other matters that may require legal advice.
3. Early Commitment Checklist >
Use this checklist before signing an important document, paying a deposit, agreeing to exclusivity or removing a condition.
4. Acquisition Deadline Tracker >
Keep the important offer, finance, due-diligence, legal and settlement dates in one place.
KEEP IN MIND
1. Know what you are signing
A document described as “non-binding” may still contain provisions with legal effect. Obtain legal advice where appropriate before signing.
2. Preliminary finance is not approval
An initial finance assessment or encouraging lender conversation should not be treated as formal approval.
3. Understand any money you pay
Before paying a deposit or exclusivity fee, understand who will hold it, when it may become non-refundable and what happens if the transaction does not proceed.
IMPORTANT INFORMATION: This guide is general educational information for accountants considering an accounting-practice acquisition. It is not legal, tax, accounting, valuation, investment or credit advice, a loan offer or an indication of approval. Funding options and lender requirements depend on the buyer, practice, transaction and available evidence. Obtain appropriate professional advice and formal lender approval before making commitments.