As Jason and I launch into our new series on the Letter of Intent (LOI), we thought we’d start out like most LOI’s do – with a little foreplay. To keep it simple, assume there are two primary parties in an M&A transaction – the “buyer” and the “seller” (for the time being, let’s not worry about complex deals that have more than two parties – this is a family blog after all – well, not really.)
By the time the buyer presents the seller with an LOI, there have been meetings, discussions, dinners, expensive bottles of wine, lots of conference calls, and an occasional argument. However, the buyer and the seller are still courting so they tend to be on their best behavior. The LOI is typically the first real negotiation and the true ice breaker for the relationship.
In ancient times, when the first LOI was presented, someone crafted an introductory paragraph that starts off with something like the following:
Dear CEO of Seller:
We have greatly enjoyed our conversations to date and are honored to present you with this letter of intent to acquire <Seller’s Company>. We look forward to entering into serious discussions over the next several months and reaching an agreement to acquire your company. We’d like to thank you for entertaining our proposal, which follows:
While every company has their own style, most LOIs start off with some variation of this boilerplate paragraph. Of course, you’ll find – later in the LOI – a qualifier that states that most everything in the LOI is non-binding, including the appearance of civility as part of the negotiation. What would you expect in a world where ABC can launch a series called “Commander in
The West Wing Chief”?
Next up – some real stuff – namely a discussion about one of the keys terms in the LOI – price.