The Letter of Intent: A Gentleman’s Agreement

The Letter of Intent is more than a document in the acquisition process—it’s a milestone. The LOI serves as an important legal document, but it also brings a new level of commitment and resolve to the deal.

I would caution against leaving the LOI to the “experts”. Although you are deep into the acquisition process by this point, you are still building trust and a shared vision with the seller. The Letter of Intent is an opportunity to solidify that relationship.

The main purpose of the LOI is to clarify the fundamental terms of the deal before either party commits additional resources (whether time or money) to the process.

As a legal document, the LOI does not commit either party of finalize the transaction. Its function is to summarize what agreements have been reached regarding the basic structure of the new business, while outlining what remains to be worked through.

Even though the LOI contains mostly nonbinding elements, it is in effect a gentleman’s agreement that the deal will come to a close and that both sides will make a good-faith effort to complete it efficiently. When the LOI is inked, there is still a long way to go before the acquisition is finalized, but you have reason for renewed confidence that you will reach your goal.

*This post was adapted from David Braun’s < Successful Acquisitions, available at Amazon.com

Photo Credit: Victor1558 via Compfight cc

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