LOI Addback Language

April 06, 2023

by a searcher from Northwestern University - Kellogg School of Management in Redwood City, CA, USA

I'm reviewing CIM's with significant add backs that will need scrutinizing in the diligence phase. In interest of moving the LOI and the deal moving forward, does anyone have any good language they have put in LOI's around accepting the add backs at face value but will validate in due diligence. This is simply an exercise in being clear and setting expectations up front.

Thanks all.

2 Likes

11 Replies

227 Views

Replies

Reply by an intermediary
from Wesleyan University in Granville, OH, USA

One approach is this language, "The Purchase Price is based on the understanding, to be confirmed in due diligence, that the Company generated consolidated adjusted EBITDA of at least $X during the fiscal year ended DATE." You can replace EBITDA and 'fiscal year ended' with whatever constitutes the basis of your offer. Key here is the apositive phrase, "to be confirmed in due diligence" with the following 'adjusted' adjective. The reception of any renegotiation will be better if you verbally explain when you submit the LOI that the adjustments are material and appropriateness will be part of your diligence. I haven't seen that explanation in writing. You don't want to try to enumerate every consideration because it will give the impression that your enumeration is comprehensive. In any case an LOI is non binding (typically, other than the exclusivity period), so it's all about setting expectations.

Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

I am not an expert in crafting the LOI's, but you may want to consider putting language in there that states add-backs that are acceptable to the lender. If you ever need information on what might be acceptable, you can reach out to me at redacted or here. Good luck.

+9 more replies.

Join the discussion