M&A Transactions Are Hard — Much Harder Than Founders Expect
If you’re buying or selling a company for the first time, the M&A process can feel like a shock.
It starts off well enough:
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Friendly conversations
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Mutual excitement
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Agreement on value
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A signed letter of intent
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The first wave of diligence questions
Then the lawyers show up… and suddenly your deal is buried in hundreds of pages of documents and a blizzard of unfamiliar legal terms like reps, scrapes, caps, baskets, true-ups, and materiality qualifiers.
What started as a promising transaction becomes a grinding negotiation. Goodwill fades. Legal bills grow. Everyone is tired — and integration hasn’t even begun.
But it doesn’t have to be this painful.
Why So Many Deals Drag On: Weak Term Sheets
The biggest reason M&A transactions become messy is surprisingly simple:
Most term sheets are incomplete.
Typical M&A term sheets include only the basics:
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Purchase price
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Structure (asset vs. stock)
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Closing conditions
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A no-shop
Everything else — including the most time-consuming, contentious issues — gets pushed to the definitive agreement stage. That’s when dozens of unresolved points suddenly become urgent, and lawyers must negotiate from scratch.
Think of it this way:
You would never build a house without a detailed blueprint.
Imagine hiring a contractor who says:
“We’ll figure out the ceiling height later.”
“Maybe we’ll add another bathroom — let’s just see how it goes.”
That’s what most M&A term sheets do. And, unsurprisingly, the results are just as chaotic.
A good term sheet works like a blueprint. It outlines key details early and eliminates costly backtracking later.
Better Term Sheets = Smoother, Faster, Cheaper Deals
When founders or buyers involve their lawyers early — before signing the LOI — they can:
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Identify problematic deal terms
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Resolve major issues when leverage is highest
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Reduce negotiation cycles
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Prevent “surprise” redlines
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Build trust between the parties
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Dramatically reduce legal fees
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Increase the likelihood of closing
A strong term sheet is not about making things complicated — it’s about making the rest of the process simple.
The Atlassian M&A Term Sheet
Recently, software company Atlassian released the M&A term sheet it uses when it acquires companies. It’s unusual in that the term sheet (1) is relatively even handed (even seller-friendly), and (2) is very detailed.
Over the course of 20+ acquisitions, it seems Atlassian has learned that more detailed term sheets yield much better M&A transactions.
Here’s a link to Atlassian’s M&A term sheet in various formats: (PDF | Word | Google Docs).
Bonus
And for the real law geeks out there…
Note how the Atlassian’s M&A term sheet includes a matrix outlining the indemnification terms. This feature alone could save more than a week of negotiations and revisions. See below:
| Type of Claim | Tipping Basket Applies? | Cap | Survival Period |
|---|---|---|---|
| Breach of General Rep | Yes | Seller’s pro rata share of Escrow Amount | 15 months |
| Breach of Fundamental Rep / Other Indemnity | No | Seller’s pro rata share of Purchase Price | Later of (i) 6 years and (ii) 60 days after the expiration of the longest applicable statute of limitations (as it may be extended). |
| Breach of Covenant | No | Seller’s pro rata share of Purchase Price | 15 months for covenants to be performed at or prior to Closing. Covenants to be performed after Closing survive until fully performed, and any claims for breaches of those covenants will survive 15 months from full performance of those covenants. |
| Fraud | No | Seller’s pro rata share of Purchase Price, except for any Seller who committed, participated in or had actual knowledge of fraud (“Bad Actor”). No limitation on the liability of any Bad Actor. | Later of (i) 6 years and (ii) 60 days after the expiration of the longest applicable statute of limitations (as it may be extended). |