What is Letter of Intent ?
Letter of Intent is a written document containing the key terms of an M&A deal. It is usually 2-3 pages long but can sometimes be longer. Both the seller and the buyer mutually sign the Letter .
What are the key terms mentioned in a Letter of Intent ?
• Purchase price : The amount the seller is going to sell the business for.
• Confidentiality Provision: Some details of the deal cannot be disclosed to a third-party. This provision protects this aspect.
• Exclusivity Provision: The seller cannot contact other buyers during the period of 60-90 days.
• Mode of payment
• Terms of seller’s non compete agreement
• Timeline for due diligence etc.
It is a non binding agreement but the “Confidentiality Provision” and “Exclusivity Provision” are usually binding.
What are the reasons to enter into a Letter of Intent?
• Minimizes misunderstandings and conflicts later on ,in the acquisition process because the it describes the important terms of the transaction beforehand.
• The Exclusivity Provision is a crucial document that all experienced buyers want.
Thank you for reading this article, if you want to understand about Due Diligence in M&A deals then click on https://lawtract.com/understanding-due-diligence/
Want to learn more about this topic, then visit https://www.investopedia.com/terms/l/letterofintent.asp
