Identify Counterparty Term Sheet Issues Scenario 01

Skill: Seller-Side Term Sheet Issue Identification

1. Subject-matter triage

• Treat the assignment as a seller-side review of a proposed non-binding M&A term sheet plus supporting deal materials.
• Separate business terms from binding legal terms before analyzing anything else.
• Identify all parties, versions, and deal documents in scope, then confirm whether there is only one operative term sheet or multiple drafts to compare.
• If the source set includes financial summary, diligence findings, or comparable transactions, use them as the factual baseline for valuation and risk-allocation analysis.

2. Failure modes the skill is correcting

• Valuation concerns are stated as generic objections without anchoring them to the company’s financial profile, market comparables, or diligence findings.
• The memo reads as a flat issue dump rather than a prioritized seller-side negotiation brief.
• Risk-allocation terms are judged against abstract market norms instead of the specific transaction profile and source materials.
• Exclusivity and no-shop terms are criticized without testing duration, scope, exceptions, and fit with the signing timetable.
• Binding provisions are not isolated from non-binding points, causing the memo to overstate or understate enforceability.
• Issue descriptions stop at identification and do not close the loop on scale, interaction with other terms, and downstream consequence.
• Recommendations are vague, untethered to roles or timing, or disconnected from the transactional milestones in the record.

3. Legal frameworks / domain conventions that apply

• Non-binding term sheets: identify which provisions are expressly binding and which are indicative only; analyze binding provisions separately and avoid treating commercial points as enforceable unless the document says so.
• Valuation assessment: test the proposed economics against the company’s financial performance, market comparables, and diligence findings; flag seller-unfriendly adjustments, discounts, or contingencies that are not supported by the record.
• Purchase-price mechanics: treat working capital, debt, cash, leakage, and similar adjustments as core economics; assess whether the baseline, measurement method, and true-up process are seller- or buyer-favorable.
• Risk allocation: evaluate indemnity basket, cap, survival, exclusions, escrow, holdback, and related qualifiers as a linked package rather than isolated clauses.
• Earnouts: assess metric choice, operational covenants, anti-manipulation protections, information rights, acceleration, and dispute resolution as a single framework.
• Exclusivity: assess whether the duration and permitted exceptions are narrowly tailored to the diligence and signing process, especially in a competitive process.
• Representation scope: flag overly broad, open-ended, or drafting-ambiguous statements as indicators of where the definitive agreement may become more aggressive.

4. Analytical scaffolds

• Read the term sheet provision by provision from the seller’s perspective and classify each point as economics, risk allocation, process, or drafting.
• For valuation points, compare the proposed price and adjustments against the company materials and any market data in the source set.
• For diligence-dependent points, tie the proposed term to the diligence finding it is said to address; if no factual hook exists, treat the point as buyer-favorable overreach.
• For exclusivity, ask whether the period, carve-outs, and process obligations preserve meaningful run-time for alternatives and signing.
• For each issue, state the concern, the seller-side revision, and the basis in the source materials or generally recognized M&A practice.
• When the analysis admits multiple parties, phases, or term variants, enumerate them first and analyze each separately rather than using a generic pass.
• Avoid unsupported legal conclusions; when a legal proposition is invoked, name the controlling authority, statute, rule, or generally recognized doctrine that supports it.
• Keep the memo focused on negotiation leverage: distinguish points that affect headline economics from those that mainly shape downside protection or drafting hygiene.

5. Vertical / structural / temporal relationships

• Track how a point in the term sheet interacts with the definitive agreement, disclosure schedules, diligence materials, and signing-to-closing timeline.
• If a term depends on later documentation, note the dependency and identify the risk of adverse drift at the definitive-agreement stage.
• Analyze process terms in temporal sequence: diligence, exclusivity, signing, closing, post-closing claims, and any earnout or adjustment period.
• Where one clause changes the practical effect of another, state the interaction explicitly rather than treating the clauses in isolation.
• If only one operative transaction scenario exists, say so affirmatively and proceed on that basis.

6. Output structure conventions

• Produce a single prioritized issues memorandum in the seller’s voice.
• Start with a short executive summary that states the overall assessment and the highest-priority negotiation points.
• Define an ordinal severity scale once at the top and apply it consistently to every issue.
• Organize the body by severity, not by document order, so the memo naturally foregrounds the most material seller-side problems.
• For each issue, include:
  • severity;
  • the issue;
  • why it matters to the seller;
  • the recommended revision;
  • the support from the term sheet and related deal materials;
  • the relevant controlling authority, rule, or market convention if a legal proposition is being stated;
  • the issue’s scale or practical magnitude using facts from the source set;
  • any cross-reference to another clause or document that affects the point;
  • the downstream consequence if left unchanged.
• End with a concise Recommended Actions section that assigns the next step to the relevant role and ties it to the signing, diligence, or drafting milestone.
• Use conventional memo language rather than a checklist format; do not mirror any hidden rubric section headings.
• Keep the writing concise, negotiation-oriented, and decision-ready.