Why Is a Letter of Intent Used in M&A?

  • The letter of intent is an essential, but non-binding document in any merger and acquisition transaction – the document which outlines the buyer’s intention to purchase the seller’s business and specifies the proposed price and the terms. The phase of elaborating the document and signing it by both parties involved in the transaction precedes the phase of due diligence, during which the buyer confirms important information about the seller, such as the seller’s financial situation, legal status and range of customers.
  • Leading Mergers and Acquisitions advisory firms affirm that the letter of intent is elaborated in the third phase of the preliminary discussions between the two companies, after the initial phase of discussing the general framework for a potential agreement and a second phase of entering various non-disclosure agreements and memorandums. The letter of intent practically summarizes the most important terms of the deal, including the payment terms, the assets that are going to be purchased by the buyer, the seller’s liabilities, provisions referring to confidentiality and exclusivity, a timeline for the due diligence phase and lots of other aspects. The contents of the letter of intent are usually used as a template for the final, binding purchase agreement signed by the parties at the end of the M&A process.

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