Why?
Because unless there is a fundamental agreement regarding the important business points between or among the parties to the transaction, there is little to no legitimate reason to invest additional time and trouble. Negotiating what is typically a far more detailed definitive purchase agreement and the various ancillary closing documents is unnecessary without a meeting of the minds.
My clients are frustrated when they see a substantial legal bill for a transaction that fails to close, and in light of that reality, and the overall value of everybody’s time and attention, I cannot recommend proceeding to the preparation and negotiation of a definitive purchase agreement without a detailed letter of intent or term sheet.
A term sheet is just that, a sheet which outlines the important business points relative to the contemplated transaction.
A sufficiently detailed term sheet serves the purpose of focusing the parties’ attention on the important business terms relative to the contemplated transaction, so, if the parties agree to a term sheet we have at least confirmed in writing that there is a meeting of the minds between the parties relative to the important business points.
A letter of intent typically includes everything that is contained in the term sheet, and covers two other important bases as well:
We cannot overestimate the importance of a detailed term sheet or letter of intent as a first step towards acquiring a business. We prefer a letter of intent to a term sheet for the reasons indicated.