The M&A Letter of Intent

By the deadline you have clearly communicated through the process, you should receive several LOIs. Or hopefully you have received at least one from a credible buyer. Worst case, you receive none and you’ll have to rethink your handling of the process (e.g., did you suggest price expectations that were too high, or did you not effectively describe the value of your business, or was your target audience misplaced?).

Some buyers will ask for a form LOI they can customize for use in your transaction. That is ideal! Have your lawyer prepare it. You have the opportunity to describe the acquisition offer in terms most beneficial to you. Of course, you can also fully expect the buyer to edit the heck out of it such that all your potential advantages are edited out.

he more likely scenario is that each bidder prepares their own LOI. Your job, with the close coordination of your lawyer, is to, first, select the buyer that is most likely to close on the best possible terms (e.g., highest price, quickest close, least restrictive conditions and reps and warranties, described below). And hopefully you will have several offers for your company that are within the range of acceptability.

It is important to note that LOIs, or most of the terms in the LOI, are generally non-binding. That makes them quite a bit easier to get executed, with each party knowing they are not entering into a binding contract. Of course, a potential buyer with no integrity can take advantage of you in this regard, tying you up for weeks or months with a non-binding agreement, but hopefully you have looked them in the eyes, interacted with them extensively, made a couple calls to their references, and made a good intuitive judgment about their character prior to signing the LOI.

GROW and SELL Advisors, wholly-owned by Traversi & Co., LLC, is a premier sell-side M&A advisory firm – a boutique investment bank – serving the lower middle market.  Visit us here.

For a short video clip on this topic, click here.