They say detailed LOIs save time on deals. What details are important?

by a searcher from The University of Chicago - Booth School of Business

4 years ago

Searchfunders - So I'm close to offering up the first LOI of my search.  I commonly hear people say that spending the time on a detailed LOI saves time, headache and money later in the process when negotiating definitive documents.  To date, I have not engaged a lawyer.  I'm doing a self-funded geographic search so am using the carrot of getting my business to help me with networking / sourcing in my geography (TBD on if that works).  So here are my two main topics.

First - For all the discussion that a detailed LOI saves time and headache, what are sections you included in your LOI that you thought really helped?

Second - My shameless ask...anybody willing to share their template LOI with me?  I have an M&A background, so know enough to be dangerous, but need a starting point to modify.  I know its a big ask, so no problem if not (comments on first question would be huge though).  If so, email is --@----.com  

Thanks!

6 likes
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13 comments

searcher from University of Pennsylvania - The Wharton School

The worst thing you can do is have a superficial LoI that does not cover all the key issues of deal from valuation, basis of the valuation (i.e. what information the seller gave you based on which you are pricing), any key assumptions (debt free, cash free), transaction parameters (key assets, IP et) that are being acquired, working capital as mentioned before and process timing/duration with explicit extension mechanisms, escrow/holdback expectations and so on. I have seen many deals die because the important issues were kicked down the road and caused issues.

4 years ago | like reply | 2 likes

searcher from Georgetown University - The McDonough School of Business

There are also examples in the HBR book https://store.hbr.org/product/hbr-guide-to-buying-a-small-business/10090

4 years ago | like reply | 0 likes

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