Is a Definitive Agreement within 45 days of LOI reasonable?

September 16, 2024

by a searcher in Chicago, IL, USA

I have a Seller who wants me to produce a draft of a Definitive Agreement within 45 days of the LOI. Is this reasonable? I have requested 60 days which I thought was industry standard.

It's a $10m EV medical services business.

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Reply by an intermediary
from University of Leeds in New York, NY, USA

A 45-day window for a Definitive Agreement after the LOI can be reasonable if the Seller has prepared key documents such as financials, contracts, and regulatory licenses well in advance, and has a data room ready to go. In a regulated industry like healthcare, compliance with regulations (e.g., HIPAA) adds complexity that could slow the due diligence process if not thoroughly organized. The transaction’s complexity, including any legal liabilities or customer concentration, may also require more time to assess. Negotiating the deal terms, especially if there are earn-outs or equity rollovers involved, can further extend the timeline. Additionally, external financing or lender approval could require extra diligence, particularly for assessing regulatory risks and the business's financial health. While 45 days is achievable, a 60-day window would be more typical given the regulatory aspects of the deal. It would also be worth asking if they have a data room ready to go, and share a due diligence checklist with them prior to see how much of this they have on hand.

Reply by an intermediary
from Hochschule für Technik und Wirtschaft Dresden (FH) in Osnabrück, Deutschland

To come a Definitive Agreement within 6-8 weeks after signing is very ambitious and might work though if you pay attention to a few points :
-Start with an experienced M&A-attorney who has a proven track record in succesful transactions. Nice to have is industry experience.
- The LoI should be drafted as a kind of briefing for your legal team, describing how the transaction should be finalised. Answer the question: What is the intent of both parties.
- Agree with ^Ron Buck and others: Set a timeline and agree them with seller, buyer and the legal time. A draft should be within 2 and 4 weeks on the table.
- Never let the lawyers negotiate with each other without moderation or participation of buyer and seller. In my experience, this increases the chance of a deal failing.

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