The Letter of Intent in M&A

In an M&A transaction, the letter of intent or LOI defines the general terms of the deal.

Here are the key components of an LOI:

Key players — define the buyer and seller in the deal.

This makes clear who is buying whom. 

High-level overview — defines the structure and key numbers for the transaction including earnouts and timelines. 

This also includes cash versus stock offers and general terms of the deal. 

Diligence — this gives a general indication of diligence to be done.

These tend to be standard boilerplate descriptions of the diligence process. 

Exclusivity — a timeframe for the buyer to perform diligence.

The seller cannot entertain other offers during the exclusivity period which typically lasts 90 days. 

The LOI indicates the buyer is serious and may soon initiate diligence. 

It’s a key milestone in the M&A process. 

 

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