A good letter of intent will cover at least all of the following:

  1. Purchase price, key assumptions, financing and payment terms, including any portion of the purchase price that is contingent on future events (i.e., “earn-outs”) and any portion of the purchase price that is “seller-financed.”
  2. Transaction structure.
  3. Applicable purchase price adjustments, and how they’re calculated.
  4. Escrow and holdbacks, which represent dollars set aside for a specified period of time after closing to protect against post-closing losses of the buyer.
  5. Indemnification limits, such as caps, baskets, and survival periods.
  6. Post-closing arrangements, such as employment agreements, non-competition agreements, “rolled” equity, leases, etc.
  7. Exclusivity periods.
  8. Obligations relating to due diligence and confidentiality.
  9. Termination.
  10. Conditions to closing.

It’s also important to make totally clear that the right portions of the letter of intent are “non-binding” and that the right portions are “binding.”

The letter of intent represents a critical juncture in a transaction and the parties’ respective negotiation leverage. As such, it’s extremely important that you engage experienced counsel to make sure you get the most out of your letter of intent.  

“No Undisclosed Liabilities” Representation

In Eric Duffee’s Anatomy of a Deal series, this piece is intended to inform the Buyer of possible liabilities that might occur once the deal is closed. 

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“Full Disclosure” Representation

This Anatomy of a Deal piece looks at when the Seller hasn’t disclosed something, causing another representation to be rendered inaccurate. 

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Good intentions: How sellers and buyers should use a letter of intent in an M&A transaction

We’ve been educating Columbus about letters of intent for years. Check out this interview from Smart Business Columbus about the terms to include + risks of using a letter of intent. 

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