What are the usual terms and conditions of a HoT

The HoT sets out:

  • The shares/assets the buyer proposes to buy. For shares this is straightforward; for assets, there will be a list – goodwill, plant and machinery, stock etc;
  • The assets and liabilities the buyer does not propose to buy. This is relevant only to assets, for example, book debts and creditors;
  • The employees passing across are normally listed;
  • The amount the buyer proposes to pay for the shares or assets and how it is to be paid. Part of the purchase price may be retained against future claims against the business or, alternatively, on an “earn-out” basis where the seller has to reach certain targets before he gets the rest of his money;
  • How the buyer has calculated the price, which is normally based on the limited information provided at this stage. These are called “the Assumptions” and the buyer lists what documents have been given by the seller, together with any particulars of sale prepared by a business transfer agent;
  • The conditions the buyer attaches to the proposed price. This is where due diligence comes in. The buyer will want to test assumptions made about price against a thorough review of the business. Conditions may also require the seller to agree to a “non-compete” clause after completion, so that the buyer gets the full benefit of the goodwill;
  • Agreed time limits for the due diligence process. This is called the “exclusivity period” and will depend on the size and complexity of the business. It can be anything up to six months. A well-organised seller can supply the information quickly and show the buyer that this is a well-run business;
  • The buyer will require the seller to give an indemnity for costs and expenses incurred in investigating the business during the exclusivity period should, for example, the seller negotiate with another potential buyer during this period.