The Letter of Intent

While we visited the LoI in Unit 13, the discussion was primarily framed from the purchaser’s perspective. Here, we will frame the discussion from the standpoint of the seller. We will also proceed as if the seller wants to rid itself of the entire business, not just some of the assets. Keep in mind that the seller will have less to do if this is structured as a stock or full ownership purchase.  If it is an asset sale and there are remaining assets, the seller will have to dissolve and wind up the company – selling the assets first and settling all liabilities.

If your seller is in a hurry to get out and has not had other offers, they will be in a lesser bargaining position. It is important not to let the other side know this.

Clearly, having a LoI would be a source of comfort for your client. Knowing that there is true interest in the business sale and that the owner could be out of it soon will be of great comfort. Remember that the owner has likely built this business from the ground up and worked to make it a success. They are emotionally vested. I recommend reiterating that the LoI is non-binding.

The purchaser is likely going to push for an exclusive chance to purchase the company—they do not want your client to continue to shop the company around. But your client may not feel secure in this initial interest enough to want to grant exclusivity. This is where you may have to remind them that not giving exclusivity may keep this deal from even being considered. It is risky.

I represented an owner who wanted to sell. They wanted to sell on a high note but also because they were going to launch a new career. They tried for a year to locate a purchaser with no luck. The next year they found someone. Time was of the essence. As a matter of fact, divesting themselves of the business was more important than the price. Here we did not hesitate to give exclusivity—the purchaser appreciated the faith, and the deal went smoothly. Additionally, the bank wanted to see an exclusivity clause in the LoI in order to even consider providing a loan for the transaction. And the purchaser needed the loan to make the purchase.

Please refer back to Unit 13 for the remainder of the LoI discussion.