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M&A 101: The Letter of Intent

Mergers and acquisitions are a risky and time-consuming part of doing business—but when they work out, they can help a business experience substantial growth and expansion in new markets. An important step in the mergers & acquisitions process is drafting a letter of intent. It paves the way for a successful purchase.

Goals of a Letter of Intent

The goal of a letter of intent is to specify what both parties bring to the table in a purchase. The buyer indicates what they are willing to pay for the business. While many aspects of a letter of intent are not legally binding, they are still an essential part of negotiations. The terms laid out in the LOI create the framework for the final deal. Information in the letter of intent includes the purchase price, proposed closing date, and provisions that protect both parties. Read here for a more in depth explanation of a Letter of Intent.

Non-Binding Terms

While a letter of intent uses formal, professional language, it is largely a non-binding document. The vast majority of the terms and provisions in a letter of intent are not legally binding. Non-binding terms in the letter of intent include:

  • Purchase price
  • Indemnification framework
  • Closing conditions
  • Arrangements for management and other key members of the team
  • Due diligence

Binding Provisions

There are some legally binding provisions in a letter of intent. Exclusivity prevents the seller from courting other buyers or soliciting offers. Confidentiality is another legally enforceable provision in a letter of intent. A letter of intent may also include a breakdown of transaction expenses and who will be responsible for each category of expenses.

Negotiating a Letter of Intent

Both parties hold some power while drafting the terms of a letter of intent. Whether you are the buyer or seller in this situation, working with a business attorney is an essential part of protecting your best interests. You may be able to negotiate the structure used for the transaction, avoid liability caused by unclear contract terms, and tackle key issues in the letter of intent.

Preparing for the Next Step

The letter of intent prepares the buyer for the next step of the mergers & acquisition process: due diligence. At any point during this step, either party can back out for any reason they choose. A well-written and fairly negotiated LOI can set both parties up for a successful transaction.

Negotiating mergers & acquisitions is tricky, which is why you need the assistance of a business lawyer. Prepare for a smooth M&A process by contacting Trembly Law at 305-431-5678.


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