Letter of Intent
After the Selling Company narrows the field of potential buyers to one or two, a request for a Non-Binding Letter of Intent (LOI) is made by the Seller. Some Buyers may agree to a Letter of Interest which typically does not have the level of detail that the seller may require to make a decision. The seller should ask for the LOI.
Typically a LOI will spell out, assuming no surprises during due diligence, the Purchase Price and Structure; the Amount and Period of Time of monies to be held in escrow, if any; the Transaction Timing and Due Diligence Requirements; an Exclusivity Period, no further solicitation; and the Confidentiality required by both parties.
Once the LOI is signed by both parties, the due diligence begins and it can be exhaustive. The LOI will become an outline for a Purchase and Sale Agreement to be drafted as Due Diligence is coming to a close. Although the LOI is Non-Binding, both parties should consult with their M & A attorneys, as the foundation of the Purchase and Sale Agreement starts now.
A Seller should be aware that the Buyer, who originated the LOI, will be able to find a way to get out of the potential deal if they so desire, so can the Seller.
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