A term sheet sets out the commercial shape of a deal before the lawyers draft it. In private company M&A it is often the same document as a letter of intent, and the important point is not the name but that signing it usually costs you the ability to talk to anyone else.
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What it should settle
Price and how it is calculated. Asset or share sale. What is included and excluded. The cash free debt free convention and the working capital target. Any escrow, note or earn out and their key terms. The warranty limitation package in outline, meaning cap, basket and survival. And what is expected of you after closing.
What binds even so
Exclusivity, confidentiality and the costs clause are typically binding even in a document that is otherwise not. Read the exclusivity period and whether it extends automatically, and check the diligence list has a deadline attached, because without one the process drifts and your leverage falls further with every week.
Why the detail matters here and not later
While several buyers are interested, every term is negotiable. After exclusivity, one buyer is negotiating with a seller who has no alternative. Terms left vague in the term sheet get settled in the buyer's favor, and that is not bad faith, it is simply the position each party is in.
Questions people ask about M&A term sheet
Is a term sheet the same as an LOI?
In private company M&A they are usually the same document under different names. The letter form is more common in the US lower middle market.
Should a lawyer review it?
Yes, and it is the highest value hour of legal time in the whole transaction, because the binding clauses and the structure are settled here.
Can I negotiate after signing it?
You can, but from a much weaker position, and only over things the term sheet left open. That is the argument for closing the open items first.