In this new weekly series, we will do an M&A 101 on various topics. Before a purchase agreement is signed, the real work of an any acquisition begins with a set of preliminary documents that are often overlooked and taken for granted. These agreements set expectations and conditions for how the transaction will proceed and getting them wrong can make for a painful transaction process. The letter of intent (the “LOI”) (also called a term sheet or memorandum of understanding). Parties typically reach agreement in principle on the key deal points (parties, transaction structure, purchase price and payment mechanics, due diligence, exclusivity, confidentiality, conditions to closing, intended timeline, allocation of expenses, and binding versus non-binding provisions) before diving into full due diligence and drafting. The LOI records these points in writing. It is critical that the LOI clearly identifies which clauses are binding and which are not, but certain clauses will always be binding, such as confidentiality and exclusivity clauses. Additionally, if either party is a publicly traded company, upon signing, the LOI can trigger disclosure obligations under applicable securities laws. Some parties prefer to have a separate, more comprehensive confidentiality agreement. During due diligence, the purchaser gains access to significant and highly sensitive information about the target business. It is standard practice for the vendor to require any prospective purchaser to execute a confidentiality agreement (or have strong and binding confidentiality provisions in the LOI) before granting access to such information. This protects the vendor because should the deal falls through, the last thing any seller wants is a failed bidder walking away with their trade secrets. Similarly, some parties also prefer to have a standalone exclusivity agreement A purchaser invests substantial time, effort, and money in due diligence and negotiation. To protect that investment, purchasers often require the vendor to agree not to negotiate with other parties for a set period. Without exclusivity, a purchaser risks doing all the heavy lifting only to be outbid at the last moment. Whether confidentiality and exclusivity are covered in the LOI or in separate standalone agreements, it is important that their terms be reviewed, so that both parties understand their rights and obligations. These preliminary documents may seem procedural and boilerplate, but they set the tone for the entire deal and it is important they are drafted properly and reviewed by legal. When properly drafted, they protect both sides, establish trust, and create the framework within which the real negotiation takes place. If you are a seller / broker and have received an LOI, we are happy to review and provide comments, no strings attached. Feel free to email me at redacted (This article is for informational purposes only and does not constitute legal advice. Readers should seek legal counsel before acting on any of the information contained herein).