A term sheet example is more useful with a number attached, because the arguments are about magnitudes rather than about wording. This page walks the lines of a term sheet on the transaction this site uses throughout: a $12,000,000 enterprise value, with the adviser on a 5% success fee and a $12,500 monthly retainer. Each line is set out with what it actually decides and what a seller should read twice.
Consideration: $12,000,000, and on what basis
Enterprise value on a cash-free debt-free basis, subject to a normalised working capital target. The number is the easy half. Normalised is a negotiation about an average over which period, and two parties can agree on $12,000,000 and still be several hundred thousand apart when the adjustment is calculated at close.
Structure: assets or equity, and who cares which
An asset purchase changes the tax position and the contract assignment work, and the buyer usually prefers it. Form 8594 exists because the allocation across asset classes then has to be agreed and filed by both sides, which is a negotiation people discover after signing rather than before.
What is held back: escrow, holdback or earn-out
This is where two offers that look identical differ most. A headline of $12,000,000 with 20% held for eighteen months is a different deal from the same number paid at close, and a seller reading only the top line will find that out later. Installment treatment has its own tax consequences worth understanding early.
Exclusivity and the fee against it
Sixty days is typical and the extension terms matter more than the number. Against this deal the adviser earns $600,000 at close on a 5% fee, plus $112,500 of retainers over nine months, or $487,500 at close if the retainers are credited. Knowing that before signing the engagement letter is the point of working it.
Questions people ask about term sheet example
What is the most negotiated line?
Usually not the price. The working capital basis and what is held back move more money than a small movement on the headline.
Does structure matter to the seller?
Yes, on tax and on assignment work. An asset purchase also requires both sides to agree an allocation and file it.
What does the adviser earn on this deal?
$600,000 at close on a 5% fee plus $112,500 of retainers, or $487,500 at close if the retainers are credited.