Mergers & Acquisitions: Letters of Intent

Hi, my name is John Sterling, and I’m a shareholder and member of the corporate transactions group at Brown Fortunato. I’m based in our Dallas, Texas office.

At Brown Fortunato, we handle a wide variety of mergers and acquisitions, and one of the first steps in the transaction process is the execution of a letter of intent, or LOI, as they’re commonly referred to.

LOIs are generally non-binding agreements between buyers and sellers that set forth the fundamental terms of a transaction.

I’ve heard people ask, “Why do I need an LOI if it’s non-binding? Can’t we work things out later?”

While buyers and sellers typically agree to core deal terms such as purchase price and deal structure, they often overlook other essential deal terms or deal breakers that, if agreed upon early, could save a significant amount of time, conflict, and expense during the remainder of the transaction process.

LOIs exist to create a minimum level of agreement between the parties to justify the time and expense to pursue the transaction.

Effective LOIs should be clear and concise, identify the key terms, delineate binding versus non-binding terms, clearly express the parties’ intentions and expectations, and do all of these things while leaving enough flexibility for final negotiations.

LOIs can set the tone for the remainder of the transaction process, and if they’re done correctly, they can maximize the chance that the transaction is ultimately consummated.

Unfortunately, there’s no one-size-fits-all solution. Each transaction is unique, and each party has different goals, objectives, and intentions. And for those reasons, each LOI needs to be tailored to each transaction.

If you have any questions or if you need help preparing, reviewing, or negotiating an LOI, I and my colleagues in the corporate transaction group at Brown & Fortunato are happy to help.