What is the LOI?

The‌ ‌letter‌ ‌of‌ ‌intent‌ ‌(LOI)‌ ‌is‌ ‌a‌ ‌paper ‌that‌ ‌is‌ key‌ ‌during‌ ‌the‌ M&A Process,‌ ‌it is formed by the main points of the first agreement made by the Buyer and the Seller. It will be the base of the Sale and Purchase Agreement (SPA)‌.

It‌ ‌is‌ significant ‌that‌ ‌all‌ ‌important‌ ‌aspects‌ ‌of‌ ‌the‌ ‌agreement‌ ‌are‌ ‌written‌ ‌down‌ ‌since thereafter, the Buyer ‌will‌ ‌invest‌ ‌in‌ ‌auditors‌ ‌and‌ ‌legal‌ ‌advisors.‌ In the case in which ‌the‌ ‌most important‌ ‌and‌ ‌relevant‌ ‌points‌ ‌were‌ ‌not‌ ‌addressed‌ ‌in‌ ‌the‌ ‌LOI,‌ ‌then‌ ‌it‌ ‌could be ‌possible‌ ‌that‌ the process‌ ‌can ‌fall‌ ‌apart‌ ‌and‌ ‌everyone‌ ‌involved‌ ‌wasted‌ ‌their‌ ‌time‌ ‌and,‌ ‌in‌ the purchaser case, a lot of money.

Furthermore, the‌ ‌LOI‌ ‌is‌ ‌what‌ the buyer will have to expose to the banks so that they can start financing what was agreed.

LOI Points:

• Abstract: This is the introduction with the fundamental aims of the LOI.
• Transactions: Simple description of the Transaction.
• Timeframe for the transaction process: This point can include deadlines to keep process moving along, according to the arrangement.
• Assumptions: It includes any representations made before the Closing of the Transaction which have been discussed between the Buyer and the Seller.
• Conditions precedent: Detailed description of conditions for the closing.
• Due Diligence: It is wise to describe in detail the areas of the company that will undergo the process.
• Financing: In this part you should incorporate the type of financing that the Buyer will use to fund it.
• Confidentiality: it is important to include a confidentiality clause due to the possibility that your document contains new sensitive information.
• Exclusivity period: This point should be as detailed as possible.
• Disclaimer of Liabilities: A brief pulled apart should be made to limit the liabilities of the Parties in the event that negotiations fall through after LOI.
• Termination of LOI & Break up Fees.
• Other conditions.