Drafting an LOI

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October 04, 2023

by a searcher from The University of Chicago - Booth School of Business in Chicago, IL, USA

Hello All,

I am getting close to drafting an LOI for an acquistion and would love to know, from anyone who has been through this before, are there any tips / best practices? I plan to use counsel, but want to do my own homework!

Thanks
Kevin

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commentor profile
Reply by a searcher
in Tampa, FL, USA
I've been through several LOI's now with various acquisitions and would highly recommend you make it as thorough as possible so it can act as a framework/blueprint for the Purchase Agreement.

This will save a ton of time - and lawyer fees - when working on the purchase agreement with the lawyer and the seller and their lawyer.

How?

Because the bulk of the major negotiating points will be outlined and can be negotiated during the LOI period.

It should cover as follows based on the LOI I use - that was vetted by my lawyer.

Prospective Transaction - Stock Vs Asset purchase, how liabilities will be handled during and post close, assignment of contracts.

Purchase price and terms - be as specific as possible with what you currently know. Also in this section outline the length of the due diligence period, financing approvals, and option for extension.

Timeline for definitive agreement.

Inspection and access to info.

Conditions - super important section that outlines what can lead to you or they breaking the LoI if needed.

Expenses

Non Disclosure

Competing Offers/Exclusivity

Non Binding Agreement

State of Governing Law

Signatures

Also it will likely will take you 2 to 4 drafts/negotiations of this LoI to get it fully executed.

But if you're thorough here, most of the potential tripping major problem points will be talked about up front and outlined how to handle when doing due diligence and working toward the purchase agreement.

Let me know if you have any more questions.
commentor profile
Reply by a searcher
from University of North Texas in San Antonio, TX, USA
^redacted‌ Absolutely, utilizing legal counsel is a prudent step when dealing with a Letter of Intent (LOI). However, it's crucial to maintain simplicity and clarity in your LOI. Unless you've had access to extensive information and financials, you should base your LOI on the information you possess. The real nitty-gritty details usually come into play during the due diligence phase. It's worth noting that if you're working with a broker, there's a chance they might not fully grasp the significance and nuances of the LOI. In such cases, it may be necessary to draft an Indication of Interest (IOI) instead. In any case, remember that an LOI is typically a non-binding agreement outlining the basic terms of a deal. It serves as a preliminary step before the formal negotiations. Always consult with your attorney to ensure that your LOI reflects your interests and protects your position. Their expertise can be invaluable in this process.
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