A construction company owner had signed away her cash without realizing it

The situation

Deqa came to us with ten days left on a clock she had set herself. She owned a mid-sized construction company in Brampton, built over almost two decades from a two-truck operation into a firm that regularly bid on commercial projects across the region. When a competing firm, jointly owned by Amina and her silent business partner James, a dentist who had invested in the company years earlier without taking an active role in running it, came up for sale, Deqa saw a chance to absorb a rival's client list and crew in one move rather than compete against them for years.

The negotiations moved quickly, faster than Deqa was used to. Amina's advisors produced a term sheet within a few weeks of first contact, and Deqa, eager not to lose the opportunity to another bidder, signed it after a single evening's review. The term sheet set a purchase price in the high seven figures and included, buried in a clause about closing conditions, a requirement that Deqa post a cash holdback equal to roughly fifteen percent of the purchase price within ten business days of signing, to be held in escrow against any post-closing warranty claims.

Deqa did not fully register what that clause meant when she signed. Fifteen percent of a high seven-figure deal was well over a million dollars, money that would need to come out of her company's working capital at a time when she had two active project bids relying on that same liquidity to secure performance bonds. It was only when her bookkeeper flagged the size of the transfer required that Deqa realized how tight the deadline actually was and how much it would cost her operationally to meet it.

By the time she called our office, the ten-day deadline was less than two weeks away, the term sheet was already signed, and Amina's side was treating the holdback requirement as settled. Deqa's first question to us was blunt: had she already lost the ability to change this.

Amina, for her part, had built the competing firm with James over almost a decade, growing it into a business roughly comparable in size to Deqa's own before deciding it was time to sell and step back from an industry that had never really been her passion the way it had become Deqa's. James had put money into the business early on but had never taken an active operational role, checking in occasionally between patients at his dental practice, and was largely deferring to Amina's judgment on how quickly to move and on what terms, which had contributed to the term sheet moving as fast as it had.

What was actually at stake

A term sheet is usually described as non-binding, and in most respects that description is accurate: it sets out the parties' intentions ahead of a formal purchase agreement, and either side can generally walk away from most of its terms. But a term sheet is only as non-binding as the parties actually wrote it to be, and this one expressly carved out its closing conditions, including the ten-day holdback deadline, as binding on their own terms. A deadline tied to a dollar figure is not firm simply because it looks firm; it is firm because the document says it survives the non-binding language around it, and here it did. Deqa's signature carried real weight on this point, whether or not she had appreciated that at the time.

The deeper issue was what the holdback would actually cost her business to satisfy. A cash holdback removes real money from a company's accounts for the length of the escrow period, typically a year or more in a transaction this size, during which that money cannot be used for anything else. For a construction company, working capital is not idle cash sitting around; it secures performance bonds, covers payroll during slow receivable cycles, and backs the letters of credit contractors already need for existing projects. Locking up a seven-figure sum right when two active bids depended on that same liquidity risked costing Deqa business entirely unrelated to the acquisition.

Amina's side had a legitimate interest behind the clause, even if the mechanism was costly for Deqa. A holdback protects a seller's buyer, in this case Deqa, against undisclosed liabilities or warranty breaches that surface after closing, by keeping money available to draw against rather than requiring a lawsuit to collect. The purpose was sound. The specific tool chosen, cash sitting idle in escrow, was not the only way to accomplish it.

What was actually at stake was whether Deqa could still change the mechanism of the holdback without reopening the price or the broader deal, in the narrow window before the deadline in the signed term sheet arrived and hardened into an expectation neither side would easily revisit.

There was a reputational dimension to the timing as well. Deqa's company regularly bid against other firms for the same municipal and commercial contracts across the Brampton area, and word of a struggling or unusually cash-strapped acquisition can travel quickly in a tight-knit industry. If Deqa had gone back to Amina asking to simply delay or shrink the holdback without offering an equally solid alternative, it risked signalling financial weakness at exactly the moment she needed her bonding capacity and her reputation with lenders to look strongest, since the acquisition itself was already going to be scrutinized by her own bank.

What we did

1. Reviewed the term sheet in full to determine which clauses were actually binding. Most of the document was expressly stated to be non-binding pending a full purchase agreement, but the holdback deadline stood apart as a specifically enforceable commitment, which meant we could not simply ignore it and had to address it head-on rather than assume it would quietly be superseded once formal documents were drafted later.
2. Confirmed the underlying purpose of the holdback directly with Amina's lawyer. Before proposing any alternative, we asked plainly what risk the holdback clause was actually meant to cover, and learned it was standard protection against undisclosed warranty claims rather than a response to any specific concern about Deqa's company or its finances, which meant an equally secure substitute would likely be acceptable to Amina's side.
3. Proposed a standby letter of credit in place of the cash holdback. A standby letter of credit is a bank's own written commitment to pay a fixed sum to the seller if specific, defined conditions are met, without the buyer ever having to physically set the cash aside in an escrow account. We proposed this as a direct, one-for-one substitute, giving Amina the same practical security without tying up Deqa's working capital for the length of the warranty period.
4. Arranged the letter of credit through Deqa's bank on an expedited, priority basis. With the ten-day deadline approaching quickly, we worked directly with Deqa's commercial banking contact to begin the letter of credit application immediately, running it in parallel with the legal negotiation rather than waiting for terms to be finalized first, so the instrument would be ready the moment agreement was reached.
5. Negotiated the drawdown conditions to match the original holdback's intent precisely. We matched the letter of credit's specific terms, meaning the exact events that would let Amina draw on it and the total amount available, to what the cash holdback would have secured under the original term sheet, so Amina's advisors had no substantive commercial reason left to object to the substitution.
6. Documented the change formally as an amendment to the term sheet before the deadline passed. Rather than letting the ten-day deadline pass unaddressed and risk an argument later, we sent a signed amendment substituting the letter of credit for the cash holdback a full two days before the original deadline, closing off any claim that Deqa had simply failed to meet her obligation on time.
7. Reviewed the full purchase agreement carefully against the amended term sheet. When Amina's side circulated the formal purchase agreement several weeks later, we confirmed the letter of credit mechanism carried through consistently into every relevant clause, rather than accidentally reverting to a cash requirement through simple drafting oversight or a recycled template borrowed from an earlier deal. Purchase agreements are often assembled by recycling clauses from prior files, and a stray reference to escrowed cash left uncorrected would have quietly reopened the problem the amendment had closed.
8. Briefed Deqa on how to explain the change if Amina or James raised it later. Because James had been largely uninvolved in the day-to-day negotiation, we prepared a short plain-language summary Deqa could send explaining why the letter of credit gave Amina and James the same protection as cash, so the substitution would not be misread later as Deqa trying to weaken the seller's security.

The outcome

The letter of credit was issued by Deqa's bank six days after we were retained, four days ahead of the original cash holdback deadline, and Amina's lawyer accepted the substitution without significant pushback once it was clear the security amount and drawdown conditions matched what the cash holdback would have provided.

The purchase price itself did not change, and the acquisition closed roughly two months later on schedule, with the transition of Amina and James's crews and equipment into Deqa's operation proceeding without the disruption a cash shortfall might otherwise have caused. What changed was where the security sat: instead of a seven-figure sum sitting idle in an escrow account for the length of the warranty period, Deqa's working capital stayed available to her company, and her two active project bids proceeded without the liquidity strain the original clause would have caused.

The letter of credit carried a modest ongoing fee to Deqa's bank for as long as it remained outstanding, a cost the cash holdback would not have created, but one significantly smaller than the return Deqa could generate by keeping that same capital working in her business rather than parked in escrow.

No claim was ever made against the letter of credit during the warranty period that followed, and it expired without being drawn on, releasing Deqa's bank guarantee at the end of the term exactly as the original cash holdback would have released her escrowed funds, but without ever having removed that money from her company's reach.

Deqa later told us that the episode changed how she reviewed documents generally, and that on a subsequent, much smaller equipment purchase for her own company, she insisted on having a lawyer review every clause with a dollar figure or a deadline attached before signing anything, rather than treating a term sheet as a formality to be initialled quickly so the real negotiation could begin later.

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