Most sellers meet this vocabulary for the first time when their adviser sends a timetable. The words are familiar enough (offer, agreement, completion) but each one has a precise meaning in an English law deal, and each changes what should be sitting in the data room on a given day. This guide walks through the stages in order, then explains the documents that cause most confusion.
Who does what, stage by stage
-
1Before heads
Seller sideSigns NDAs and issues the IM
Buyer sideSubmits an indicative offer
Data roomThin set: IM and summary accounts
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2Heads of terms
Seller sideAgrees price and deal structure
Buyer sideCommits to exclusivity
Data roomFull room opens to the preferred buyer
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3ExclusivityPeak use
Seller sideAnswers Q&A and uploads replies
Buyer sideRuns diligence workstreams
Data roomQ&A and audit trail at peak use
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4SPA and disclosure
Seller sideDrafts the disclosure letter
Buyer sideNegotiates the warranties
Data roomIndex frozen and archive exported
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5Exchange and completion
Seller sideDelivers completion documents
Buyer sidePays and stamps the transfer
Data roomCompletion folder, then close
The room starts thin, carries the most traffic during exclusivity and is frozen before exchange.
datarooms.ukUK private sale
What happens before heads of terms are signed?
Three things, broadly: confidentiality is secured, the business is described, and interested parties put a price on it.
The non-disclosure agreement (NDA, sometimes called a confidentiality agreement or confidentiality undertaking) comes first. On a broker-led sale it is often signed before the buyer even learns the company’s name. It should cover who may see the information, what they may do with it, non-solicitation of staff and customers for a period, and return or destruction of material if the talks end. Bidders using external advisers will want those advisers covered too.
Next comes the information memorandum (IM), a selling document prepared by the corporate finance adviser or broker. It describes the business, its market, management, financial history and the opportunity for a buyer. In the room it usually sits on its own in a “Process” folder alongside the process letter, if there is one.
On a competitive sale, bidders then submit indicative offers. These are non-binding letters setting out a headline price, the basis of valuation, how the deal will be funded and what diligence the bidder still needs. The seller’s adviser compares them and picks one or two to take forward.
At this stage the data room is deliberately thin. A typical pre-heads room holds the IM, three years of summary accounts, a management presentation and perhaps a high-level organisation chart. Customer names, salaries and contracts stay out. If you open the full room before you have a preferred buyer, you hand competitors and tyre-kickers your most sensitive information for no gain.
What are heads of terms and are they binding?
Heads of terms (also called a term sheet, letter of intent or memorandum of understanding) record the main commercial points agreed between seller and buyer before lawyers draft the full contract. They typically cover:
- the price and how it is paid (cash at completion, deferred consideration, earn-out, loan notes);
- whether the deal is a share sale or an asset sale;
- the mechanism for fixing the price, usually locked box or completion accounts;
- key conditions, such as consents, financing or regulatory clearances;
- what happens to the management team, including any rollover or new service agreements;
- the expected timetable to exchange and completion.
Most of that is expressed to be not legally binding. The parties are still free to walk away or renegotiate, and in practice price chips during diligence are common. A few clauses are normally drafted to bind: exclusivity, confidentiality, each side bearing its own costs, and governing law. Your lawyer should confirm which clauses bind in your document, because drafting varies.
How long does exclusivity usually last, and what does the room do during it?
Exclusivity, sometimes called a lock-out, prevents the seller from talking to other buyers for an agreed period. It is commonly set at somewhere between several weeks and a few months, depending on the size and complexity of the deal, and buyers will often ask for an extension if diligence runs long. There is no statutory standard; it is whatever the parties agree.
During exclusivity the data room becomes the centre of the deal. The buyer’s accountants, lawyers and sometimes tax, IT, pensions or environmental specialists all work from it at once. Each team raises questions through the Q&A, the seller’s side answers, and new documents are uploaded in response.
Three habits make this phase go faster:
- Open the full room on day one of exclusivity. If the seller drip-feeds folders, every workstream stalls waiting for the next batch.
- Route every question through the Q&A. Answers given by email or phone are hard to find later and cannot easily be disclosed against.
- Hold a weekly diligence call that works from the open-questions report in the room rather than from memory.
The National Security and Investment Act 2021 is worth a check at this point. If the target operates in one of the sensitive sectors the Act lists, the buyer may need to notify the government and wait for approval before completing. That turns a simultaneous exchange and completion into a split one, and the room may need to stay open for longer than planned.
What goes into due diligence on a UK private sale?
Buyers usually split diligence into workstreams, each with its own adviser and its own request list. The table below shows the core workstreams and the folders each relies on.
| Workstream | Usually led by | Folders it lives in | Typical questions |
|---|---|---|---|
| Financial | Buyer’s accountants | Accounts, management accounts, forecasts, working capital | Quality of earnings, normalised EBITDA, debt-like items |
| Legal | Buyer’s solicitors | Corporate, contracts, property, IP, litigation | Change of control clauses, title to shares, disputes |
| Tax | Accountants or tax advisers | Tax returns, HMRC correspondence, payroll | Open enquiries, employment status, R&D claims |
| Commercial | Buyer or consultants | Customers, pricing, pipeline, market | Concentration, churn, contract renewals |
| HR and pensions | Solicitors, pensions advisers | Employees, contracts, policies, pension schemes | Key staff terms, pension deficits, disputes |
| IT and data | Specialists | IT systems, security, data protection | Licensing, cyber incidents, UK GDPR compliance |
For the personal data in the HR folder, see our guide to UK GDPR in a data room; for employees transferring on an asset sale, the TUPE employee data guide.
What is the SPA and how does it relate to the data room?
The share purchase agreement (SPA) is the binding contract for a share sale. On an asset sale the equivalent is a business purchase agreement or asset purchase agreement. The buyer’s solicitors usually produce the first draft, often during diligence so that the two run in parallel.
The parts of the SPA that connect to the data room are the warranties and the disclosure provisions. Warranties are statements of fact about the business (the accounts are accurate, there is no litigation, the company owns its IP, and so on). If a warranty turns out to be untrue and the buyer suffers loss, the buyer may have a claim against the seller.
The seller protects itself by disclosing against the warranties. Anything fairly disclosed generally cannot found a warranty claim. Fair disclosure means enough detail for the buyer to identify the nature and scope of the matter, and that is where a well-organised data room earns its keep: a buried document with a vague file name is a weak disclosure.
What does the disclosure letter do?
The disclosure letter is a letter from the seller to the buyer, delivered at exchange, that sets out exceptions to the warranties. It usually has two parts:
- General disclosures: categories of information treated as disclosed against all warranties. These commonly include public registers (Companies House, HM Land Registry) and, importantly, the entire contents of the data room as at a stated date.
- Specific disclosures: numbered paragraphs that match particular warranties and describe a matter in detail, often cross-referring to specific documents by their data room index number.
Buyers often push back on general disclosure of the whole data room, arguing that they cannot be expected to know every detail of every document. The negotiated outcome varies. Either way, the index and an archived copy of the room are what both sides will rely on if there is ever a dispute, so they need to be accurate and fixed at a known date.
Our planned guide to the disclosure letter and the data room covers the drafting side in more depth.
Locked box or completion accounts: which one affects the room more?
Both set the final price, but they put the financial evidence in different places and keep the room busy for different lengths of time.
| Locked box | Completion accounts | |
|---|---|---|
| How the price is fixed | Agreed upfront by reference to a balance sheet at a past date (the locked box date) | Estimated at completion, then adjusted once accounts drawn up to the completion date are agreed |
| Key protection for the buyer | Covenant against “leakage” of value to the seller after the locked box date | A true-up of cash, debt and working capital after completion |
| What the room must hold | Locked box accounts, ideally audited or reviewed, and evidence of permitted leakage | Working capital history to set the target, then completion balance sheet workings |
| When financial diligence peaks | Before signing, on the locked box balance sheet | Both before signing and in the weeks after completion |
| Room after completion | Can usually be archived at completion | Often kept open, or partly reopened, for the completion accounts process |
| Disputes tend to be about | Whether something counts as leakage | Accounting policies used for the completion balance sheet |
The choice is commercial and usually settled in heads of terms. For the data room, the practical point is that a completion accounts deal may need a smaller, controlled area to stay live for some weeks after completion, so check the room’s billing terms before you assume you can close it on completion day.
What changes between exchange and completion?
Exchange is the moment the SPA is signed and becomes binding. Completion is when ownership actually passes and the price is paid. On many UK private sales the two happen on the same day (“simultaneous exchange and completion”). Where there are conditions, such as a regulatory approval, lender consent or the national security clearance mentioned above, there is a gap.
During a gap the room does two jobs. First, it holds the conditions evidence: consents as they arrive, filings, and correspondence with regulators. Second, it supports the completion deliverables: the documents each side must hand over at completion, such as signed stock transfer forms, resignations of departing directors, board minutes approving the transfer, and releases of any security.
On a share sale, the stock transfer form will usually need to be stamped by HMRC and stamp duty paid by the buyer. HMRC’s guidance on stamp duty on shares sets out the current rate and process. Keep the stamped form and the updated register of members in the room’s completion folder.
Open the full room when heads are signed
Move the preferred buyer from the limited marketing set to the full diligence folders on the first day of exclusivity, with permissions set per adviser team.
Run Q&A as the single channel
Ask every workstream to raise questions in the room, assign each to an owner on the seller's side, and publish the open-questions report weekly.
Track the SPA warranties against folders
Once the first draft SPA arrives, map each warranty to the folder that evidences it so gaps surface before the disclosure letter is drafted.
Freeze and archive before exchange
Agree a cut-off, stop uploads, export the index and an archive copy, and reference that exact version in the disclosure letter.
Keep a completion folder live
Hold conditions evidence, signed completion documents and, on a completion accounts deal, the post-completion workings in a small controlled area.
Close and hand over the archive
When the deal is fully done, provide archive copies to both sides as agreed in the engagement terms, then close the room so billing stops.
Who can see what, and when?
Permissions should widen as the deal firms up. A useful rule is that each stage earns access to one more layer of sensitivity:
- Before heads: IM, summary financials and a management presentation; view-only, watermarked, no downloads.
- Exclusivity: full diligence folders for the preferred buyer’s advisers, with personal and commercially sensitive items in restricted sub-folders.
- Late diligence: named employee data, key customer contracts and pricing, released to a small “clean team” if the buyer is a competitor.
- Exchange and completion: completion deliverables, visible to both legal teams.
Every specialist room on our UK shortlist supports folder-level permissions, watermarking and an audit trail, so this staging is a matter of discipline rather than technology. What differs is how easy each makes it to move a whole bidder group from one stage to the next.
A room that opens fully on the first day of exclusivity and freezes cleanly before exchange will save more time than any feature on a pricing page.
Planning a UK sale and choosing a room for the diligence phase? Four questions give you three rooms matched to your deal.
Match my dealQuestions people ask
Are heads of terms legally binding in the UK?
Mostly not. The commercial terms are normally expressed to be subject to contract, but clauses on exclusivity, confidentiality, costs and governing law are usually drafted to bind. Check the wording of your own document with your solicitor.
When should the full data room open?
Usually on the first day of exclusivity after heads of terms are signed. Before that, a limited set of marketing documents is enough for bidders to price the business.
What is the difference between exchange and completion?
Exchange is when the sale agreement is signed and becomes binding; completion is when ownership passes and the price is paid. Many private sales do both on the same day, but conditions such as regulatory approvals create a gap between them.
Does the whole data room count as disclosed?
Often the disclosure letter makes a general disclosure of the data room contents as at a set date, but buyers frequently negotiate limits on this. Specific disclosures against particular warranties should still be made for anything material.
Can the data room be closed on completion day?
On a locked box deal it often can, once archive copies are handed over. On a completion accounts deal, keep a small area open until the completion balance sheet is agreed.