Based on extensive experience in M&A for mid-sized B2B industrial companies, the following are the most common sticking points during Term Sheet negotiations:

1. Valuation Discrepancies
2. Issue: Differences between the buyer's and seller's perceived value of the company.
3. Resolution: Detailed financial models and third-party valuations can help bridge gaps. Structuring deals with earn-out provisions can also align future performance with valuation.
4. Earn-Out Provisions
5. Issue: Conditions for additional payments based on future performance often lead to disagreements.
6. Resolution: Clear, measurable KPIs and timelines must be established. Including caps on potential earn-outs can provide certainty for both parties.
7. Representations and Warranties
8. Issue: Sellers need to assure buyers about the company's condition and operations. Differences in what should be guaranteed can be contentious.
9. Resolution: Detailed disclosure schedules and indemnity caps help mitigate risk. Buyers may require insurance for additional protection.
10. Indemnification Clauses
11. Issue: Provisions for covering potential future liabilities can be heavily negotiated.
12. Resolution: Establishing caps on indemnity and time limitations for claims can provide balance. Sellers might insist on escrow accounts to cover potential claims.
13. Non-Compete Agreements
14. Issue: Restrictions on the seller's future business activities can be problematic, especially if the seller is active in the industry.
15. Resolution: Defining reasonable timeframes and geographic scopes for non-competes is crucial. Compensation for agreeing to non-competes can also be negotiated.
16. Employment Agreements
17. Issue: Terms for retaining key employees post-acquisition are often critical.
18. Resolution: Offering attractive retention packages, including bonuses and equity participation, can help secure key talent. Clearly defining roles and responsibilities post-acquisition is also essential.

Examples and Data Points

1. Valuation Discrepancy Example
2. Scenario: In a recent acquisition of a mid-sized manufacturing company, the primary sticking point was the valuation discrepancy. The seller valued the company at $50 million, while the buyer's offer was $40 million.
3. Resolution: The deal was structured with a $45 million upfront payment and an additional $5 million earn-out contingent on achieving specific revenue targets over the next two years.
4. Earn-Out Provision Example
5. Scenario: A technology company acquisition involved significant differences in earn-out expectations. The seller wanted aggressive growth targets for additional payments, while the buyer preferred conservative benchmarks.
6. Resolution: They agreed on a tiered earn-out structure with varying payments for different levels of performance, with a maximum cap of $10 million.
7. Representations and Warranties Example
8. Scenario: During the acquisition of an industrial equipment supplier, extensive negotiations were needed on representations regarding environmental compliance.
9. Resolution: Detailed environmental audits were conducted, and specific indemnities were included for any pre-existing issues, with a cap of $2 million.
10. Indemnification Clause Example
11. Scenario: In the sale of a chemicals company, indemnification for potential future litigation was a major concern.
12. Resolution: An indemnity escrow account was established, holding 10% of the purchase price for two years, providing both parties with assurance.
13. Non-Compete Agreement Example
14. Scenario: The sale of a construction services firm required the seller to agree not to compete for five years, but the seller felt this was too long.
15. Resolution: They compromised on a three-year non-compete agreement with a $1 million compensation for adherence.
16. Employment Agreement Example
17. Scenario: In an acquisition of an engineering consulting firm, retaining key engineers was critical.
18. Resolution: Key employees were offered three-year contracts with performance bonuses and equity options to ensure their commitment.

Clarifying Questions

To further tailor the advice and provide more specific insights, contact me with:

1. The particular industry of the target company?
2. Any specific concerns or goals the owners have expressed regarding the sale?
3. The size of the company in terms of revenue, employees, or market share?