Solicitors for HoTs and Reimbursement clause?

searcher profile

January 04, 2025

by a searcher from KEDGE Business School in London, UK

Hi there,

I'm at HoT stage with a seller.

They have now gotten their solicitor (non-M&A specialised) involved who is taking apart quite a lot of it.

I'm trying to remind everyone that this is just the HoT and most of it isn't legally binding, but am expecting that the solicitor will push back.

One major point is that he wants to remove the costs section, where we reciprocally agree to pay for the incurred DD costs if we retrieve from the deal during DD.

Any thoughts on this?
Have you involved a solicitor before being under exclusivity (ie to craft the HoTs)?
How have you dealt with the Cost reimbursement clause?

Thanks in advance.
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commentor profile
Reply by a searcher
from University of Oxford in London, UK
Hi Florian, agree with you that getting a solicitor involved at the HoT stage is a complete overkill - I'd never do it personally, but I have worked with sellers / buyers in the past who do this if they are not familiar with the M&A process. The risk here is that the solicitors will shift the focus of the HoT away from the key commercial issues to legal / execution issues, diluting the essence of the HoT and prolonging the negotiation.

The reciprocal cost reimbursement clause is unusual - the standard (at least in the deals that I have come across) is for each party to bear their own costs. Having said that, when I was working for a mid-market PE fund I have agreed to HoTs where we agreed to reimburse the seller's costs (subject to an daily cap) in exchange for exclusivity, but this was driven by strategic considerations (i.e. we were really keen on the deal and wanted the seller to stop talking to other potential buyers).

Happy to talk further.
commentor profile
Reply by an intermediary
from University of Western Australia in London, UK
It's normal for the sell-side lawyer to be involved at HoT stage but if they are not an M&A specialist it will lengthen negotiations - not just at this stage but in the purchase agreement negotiations. Their lawyer will be too conservative and won't know what is "market". Having said that, if the seller is not using a corporate lawyer with an M&A focus (ideally one who has specific experience in that particular industry), I would hazard a guess that they are not using a specialist investment banking (corporate finance) advisor either. Both of these factors will enable you as the buyer to get a much better deal, although you will have to be patient in negotiations.

The reimbursement clause is relatively unusual. However, changing it now (after it was agreed) is reopening negotiations on this point. You might want to reassess how much renegotiating you have patience for. It depends on the commercial terms and how much you want to do the deal.
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