Letter of Intent for Mergers and Acquisitions

In a corporate merger or acquisition, it is important to ensure that both companies involved are on the same page early in the process. Mergers and acquisitions can be complicated and can require costly resources, so it is important to know what each party is prepared to offer before moving forward with the transaction. One way to ensure both parties are on the same page is to draft a letter of intent (LOI), which outlines the deal points of the merger or acquisition and serves as a type of “agreement to agree”.


The LOI should be carefully drafted by the purchasing company and submitted to the selling company and should set out important basic terms of the transaction. This letter is typically not viewed as a binding contract though that does not mean it should not be given careful consideration. When submitting an LOI, the buyer should put forth attractive though realistic terms. If it fails to do so, it could result in a breakdown in negotiations or a later legal dispute if the expectations set out in the LOI were not in good faith. On the other hand, the purchaser should fully realize that an LOI does not represent the final agreement and that the terms of the deal may change after due diligence is conducted. Because of the importance of an LOI to a merger and acquisition, you should always seek assistance from an experienced M&A attorney when drafting, reviewing, or negotiating the letter.

Provisions to Include in a Letter of Intent

While the provisions in an LOI will vary from transaction to transaction, some important provisions that should be included are:

  • Purchase price and terms of payment;
  • Conditions of closing;
  • Acquisition of assets vs. shares;
  • Guarantees of exclusivity for a certain period of time;
  • Non-disclosure and confidentiality clauses;
  • Good faith clauses.

Many of these clauses can be one-sided in favor of the purchaser and unfair to the seller. Without careful review and understanding, the seller risks future legal liability or the loss of the right to take legal action if it signs an LOI with such terms. For this reason, it is imperative for any company that receives an LOI to have it reviewed by a skilled attorney to identify any clauses that have potentially harmful effects.

Further, a business attorney can help the company receiving the LOI determine where its leverage lies and to accordingly alter, add, or remove provisions from the LOI in order to make the LOI less one-sided to the purchaser and to be more balanced in its terms.

Contact a San Jose Merger and Acquisition Lawyer for Assistance

Whether you are a buyer or a seller in an M&A, you should have an experienced business attorney representing your interests. Please call Structure Law Group for a consultation at 408-441-7500 today.