Whether you are buying or selling a business, a crucial step in this process is drafting an effective Letter of Intent (LOI), which sets the tone for the entire transaction and establishes a solid foundation.
In this post, I’ll share a comprehensive sample template to help guide you through the process of crafting a winning LOI.
My goal is to empower you with the knowledge and tools to negotiate M&A transactions confidently, and ultimately, to maximize the value of your business.
So, whether you’re looking to acquire a new business, merge with a competitor, or divest a non-core asset, this sample template will serve as your first step.
As always, be sure to consult with your M&A lawyer and advisors before moving forward.
Sample Letter of Intent to Purchase Business
[Date]
PRIVATE AND CONFIDENTIAL
[Your Name]
[Your Address]
Re: Letter of Intent
Dear [__________]:
Pursuant to recent discussions, we are pleased to submit the following proposal (this “Letter of
Intent” or “LOI”) on behalf of [_______________] (“[_______]” or “we”) for [___________] to acquire (the “Transaction”) [______________], a Company Registered in [_____________] (the “Company”) with its U.S. subsidiary [__________], a [_______] Corporation. We have been impressed with what we have learned about [___________] to date through review of the materials provided, and we look forward to continuing to explore the opportunity for an acquisition.
Founded in [_____], [___________] is the [description of company].
The terms of our Proposal are outlined below:
1. Purchase Price and Structure: Based upon the information available to us to date, we propose to acquire the Company for an enterprise valuation of USD$[__] million (the “Offer”). This consideration will be in cash at closing, subject to standard closing adjustments and escrows for transactions of this nature.
Subject to any potential issues arising out of our due diligence process, we would anticipate Ten (10%) of the valuation will be held in escrow by a third party for a period of eighteen months (escrow amount anticipated to be USD$[__] million). This Offer represents a multiple of approximately X times adjusted EBITDA of ~USD$[__] million (for avoidance of doubt this includes add backs for approximately USD$[__] thousand of payroll and benefits per year associated with compensation for CEO [____________]).
This valuation assumes that the Company is acquired on a debt-free basis and that the Company will have a normalized level of working capital at closing which will include a minimum cash balance of USD$[__] million. For the avoidance of doubt, the existing shareholders of [___________] will receive the economic benefit of all excess cash above the minimum cash balance of USD$[__] million (both parties will work together to structure this in the most tax -efficient manner). Based on estimates received of projected calendar year-end cash of approximately USD$[__] million, we estimate this economic benefit will be approximately USD$[__] million. Therefore, we view this Offer as providing a total economic benefit of approximately USD$[__] million to existing shareholders of [___________].
In deriving our valuation, we have assumed that: (a) business practices through the date of closing of the proposed Transaction are in accordance with past practices, and in line with budget; (b) key employees are retained during the Transaction; (c) [___________] obtains all necessary third party consents with respect to material contracts; and (d) no material contracts, licenses, leases or other arrangements will terminate as a result of the Transaction.
Our LOI is based on the materials previously furnished by you. We have used the historical financial information provided in order to assess the prospects of the Company. By necessity, we have assumed that the information made available to us is accurate and can be verified during confirmatory due diligence.
2. Integration: We are excited to work with management to grow the combined enterprise. We look forward to spending more time with management and learning more about [___________]. We also look forward to working with management to facilitate a seamless integration of the combined enterprise.
3. Approvals and Conditions: Any final proposal will be subject to: (a) completion of our due diligence as described below; (b) the negotiation and execution of mutually satisfactory definitive agreements (explained further below); and (d) final Board approval. Each of these is explained in more detail below.
We are not aware of any legal or regulatory matters that would adversely affect our ability to complete the Transaction.
4. Legal Documentation: Any Transaction will be subject to, among other things, the execution and delivery by all appropriate parties of definitive legal documents (the “Definitive Agreements”) customary for transactions of this type, including without limitation, a Share Purchase Agreement (SPA) with warranties, closing conditions, escrows, covenants, and indemnification customary for transactions of this type subject to customary limitations.
Further, [___________] expects the sellers and key management to sign customary non-compete and non-solicitation arrangements.
5. Due Diligence Items: We have a team of experienced advisors ready to begin formal diligence and anticipate that the due diligence process will include the following:
– Company Accounts, Financials and Tax Returns;
– Business Development, Sales Pipeline & CRM;
– Management Team and Board of Directors Structure;
– Patents, Trademarks & Intellectual Property;
– Litigation History: Regulatory Compliance & Environmental Issues;
– Strategic Plan & Budgets;
– Employment Matters;
– Systems & Technology Infrastructure; and
– Other Due Diligence Issues.
6. Exclusivity/Confidentiality: The Company agrees to work in good faith expeditiously towards a closing. The Company agrees that it will not, before [Date], take any action to solicit, initiate, encourage or assist the submission of any proposal, negotiation or offer from, or otherwise discuss with any person or entity other than [___________] relating to the sale or issuance, of any of the equity interests of the Company, the acquisition, sale, lease, license, recapitalization (whether equity or debt financed) or other disposition of the Company or any material part of the stock or assets of the Company (“Alternative Transaction”) and shall notify [___________] promptly of any inquiries by any third parties in regards to the foregoing.
The exclusivity will auto-renew for 15-day increments if each of the Company and [___________] are working diligently and in good faith to close the transaction. The Company and its shareholders will immediately cease any discussions with third parties regarding an Alternative Transaction.
The Company will not disclose the terms of this LOI to any person other than officers, members of the Company’s board of directors and the Company’s accountants and attorneys, without the written consent of [___________].
7. Expenses: The Company and its shareholders will bear their own due diligence expenses incurred in connection with the Transaction. All other transaction costs and expenses associated with this negotiation, the exchange of documents, execution of Definitive Agreements, closing and post-closing matters shall be borne by the parties in accordance with their respective agreements.
8. Expiration: This LOI will expire at the close of business at 12:00AM EST on [Date], unless executed by the Company and delivered to [___________] prior to that time.
9. Governing Law and Counterparts: This LOI shall be governed by the laws of the English Law without giving effect to choice of law principles. The parties have discussed and understand that the ultimate jurisdiction/choice of law for enforcement of the contemplated SPA will vary to protect respective rights of the parties. This LOI may be executed in one or more counterparts (including by facsimile, pdf or other electronic delivery) which, when taken together, shall represent a fully executed LOI. Customary [jurisdiction] deal terms will apply to the Transaction.
10. Public Announcement: The parties mutually agree that no press release or any other public announcement shall be made regarding the Transaction contemplated under this LOI and that a press release or public announcement shall be made only upon the closing of the transaction contemplated herein. Any such announcement shall be made either by [___________] or jointly by [___________] and the shareholders of [___________], unless the parties mutually agree otherwise.
11. Non-Binding Effect: This LOI should be considered merely an expression of our interest to make an investment in the Company generally on the terms outlined above and should not be considered an offer, an agreement of purchase and sale or other binding commitment. Neither party is obligated to enter into or perform any agreement regarding our proposed investment unless and until definitive agreements are executed and, in such event, only to the extent set forth in any such agreements. Notwithstanding anything in this LOI to the contrary, the parties intend that (i) the provisions in this LOI be enforceable and binding and that the rights and obligations contained in such paragraphs will inure to the benefit of the parties’ successors and assignors and (ii) other than as provided in subclause (i), no other provision in this LOI is intended to create a binding obligation on any party.
12. Timing. Due to our industry expertise and that we are unaware of any legal, regulatory, or anti-trust matters, we are confident we can complete business due diligence and enter into definitive documentation without delay.
13. Transaction Team. We will assign a primary team to this transaction and direct that they report regularly on progress towards closing. These team members are dedicated to the Transaction and will work diligently to finalize the Deal within a timely manner.
Please feel free to contact any member of the team with questions regarding this LOI.
INSERT CONTACT INFO
We are eager to continue our diligence of this opportunity and are prepared to move quickly. Should you have any questions or clarifications, please do not hesitate to contact any of the professionals listed above.
We look forward to hearing from you.
Sincerely,
YOUR NAME
TITLE
