Letter of Intent

If the buyer is an individual: Once we receive the completed Term Sheet, we then prepare a written offer to purchase, or in some cases, a letter of intent (LOI).

If the buyer is a company or private equity firm: The buyer will prepare the letter of intent.

The letter of intent does not contain the necessary language to affect a proper closing, though it allows the parties to agree on the essential terms and move the transaction forward. A more comprehensive purchase agreement will replace the offer or letter of intent.

Once the offer or LOI is accepted, the parties begin due diligence, while the purchase agreement is usually prepared simultaneously with due diligence.

The following are the primary elements of the LOI/Offer:

Purchase Price & Terms

  • Earnest money deposit
  • Seller note — length, interest rate
  • Bank financing
  • Earnout
  • Holdback

Transaction Structure

  • Asset sale
  • Stock sale
  • Merger

Due Diligence

  • Length

Contingencies

  • Bank financing
  • Third-party approvals — landlord, franchisor, distributor, etc.
  • Licensing

Exclusivity (No–shop)

  • This prohibits the seller from negotiating with other buyers during the exclusivity period.

Confidentiality

  • Some offers and LOIs include language addressing confidentiality that supplements the initial NDA that was signed.

Expiration Date

  • The LOI should include an expiration date so the seller doesn’t make an open-ended commitment.

Schedule Closing Date

  • The closing date is a suggested target and is not set in stone. The buyer and seller can extend the time until the closing if they mutually agree upon it. 

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