Expression of Interest vs Heads of Agreement When Buying an Accounting Practice
Updated: Oct 24
GUEST AUTHOR | Blackhall & Co
Today’s guest post is by Blackhall & Co. Blackhall & Co helps buyers find businesses worth owning. Opinions expressed by guest authors are their own and do not necessarily reflect the views of Fairlane Finance.
An expression of interest and a heads of agreement can both record progress, but the label does not tell you which terms are binding or how far the parties have committed.
Expression of interest vs heads of agreement discussions often arise when an accounting-practice acquisition moves from exploration into Stage 4 negotiation.
The useful distinction is commercial purpose and timing. The legal effect of the actual document should be explained by the buyer's lawyer.
Expression of interest vs heads of agreement: the short answer
An EOI commonly records an indicative proposal or interest in progressing.
A HOA commonly records more developed headline commercial terms before the detailed sale agreement.
Either document may contain terms intended to take effect immediately depending on the wording.
The title alone does not determine whether the document is binding or non-binding.
Finance, due diligence, exclusivity, deposit and timing terms should be understood before signing.
What is an expression of interest used for?
An EOI can help a buyer communicate price, structure, conditions and interest without moving immediately to a full sale agreement.
It can also help a vendor compare proposals or decide which buyer should progress further.
What is a heads of agreement used for?
A HOA can be used once the parties want to record a more developed commercial position—such as price, payment structure, conditions, exclusivity, due diligence and timing—before the detailed transaction documents are prepared.
The label does not determine the legal effect
The buyer should not assume an EOI is always non-binding or a HOA is always binding. The actual wording and circumstances matter, and the buyer's lawyer should advise on the particular document.
Stage 4 is about what the document allows next
A useful Stage 4 document should frame the commercial terms in a way that allows finance, due diligence and legal work to continue rather than creating conflicts between them.
Questions to ask before signing
What commercial terms are being recorded?
Which terms are intended to take effect immediately?
What finance and due-diligence conditions are proposed?
Is exclusivity included?
Is a deposit required?
Has the buyer's lawyer reviewed the actual document?
Frequently asked questions
Is an EOI always earlier than a HOA?
Often it is used earlier, but transaction processes vary. The practical question is what the document is intended to achieve in the specific sale process.
Can a HOA be partly binding?
It can be structured in different ways. The legal effect of any particular term should be explained by the buyer's lawyer.
Should finance be addressed in both?
If finance is relevant to the buyer's ability to complete the acquisition, it should not be ignored simply because the document is preliminary.
Illustrative Stage 4 scenario
A buyer first submits an EOI with an indicative price and finance condition. After negotiations, the parties move to a HOA that records a revised price, exclusivity period, deposit and proposed timetable.
The legal effect depends on the actual documents, but commercially the HOA reflects a more developed transaction. This example is illustrative only.
Which adviser covers which issue?
A commercial lawyer should explain the legal effect and drafting.
A finance broker can check that finance assumptions and deadlines match the current terms. The buyer's accountant or transaction adviser can help assess the commercial economics.
What should you look at next?
If the document requires money to be paid, the buyer should understand the deposit arrangement before transferring funds.
Conclusion
The useful Stage 4 question is not whether the document is called an EOI or HOA. It is whether the commercial terms and legal effect are understood well enough for the next workstreams to progress properly.
Sources and further reading
Contributor disclaimer: This article is contributed by Blackhall & Co and published on the Fairlane Finance website. The views, opinions and conclusions expressed are those of the contributor alone, not statements of Fairlane Finance’s position. Publication does not constitute Fairlane Finance’s endorsement of the contributor’s views, services or any proposed acquisition.
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