Letter of Intent for Mergers and Acquisitions in Texas

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AdobeStock_244469747-300x200A key step in any Texas mergers and acquisitions (M&A) transaction is signing a letter of intent (LOI). The LOI outlines the primary terms agreed upon for the proposed deal and serves as a roadmap for conducting due diligence and progressing toward a final purchase agreement and closing. The experienced Texas M&A attorneys at Structure Law Group can guide and represent you, whether you’re a buyer or seller, to ensure your best interests are thoroughly protected during LOI negotiations.

Is a Letter of Intent Binding?

In most cases, the LOI is non-binding except for a few provisions. This is because the signing of a LOI generally occurs before the buyer has a chance to conduct due diligence. So, the buyer must rely almost exclusively on the seller’s representations about the condition of its business. Few buyers would bind themselves to a binding agreement–especially with regard to a purchase price–until they have had the chance to verify these representations for themselves.

That said, here are a few examples of binding provisions that are often contained within an otherwise non-binding LOI:

  • Exclusivity: The buyer usually insists on a binding exclusivity period, meaning the seller cannot pursue other potential offers for their business. The seller, in turn, will want this exclusivity period to be as short as possible.
  • Confidentiality: Both sides usually demand confidentiality and non-disclosure of any information disclosed to the other party during negotiations or due diligence. This is especially important when the parties are direct competitors in the same industry or market.
  • Access: To conduct due diligence, the buyer will insist on the seller’s commitment to make their records and critical business information available. The LOI will typically specify a binding due diligence period of 30 and 90 days.

As far as the other, non-binding terms in a LOI, some of the basics include:

  • the legal form of the transaction–that is, whether this is a stock sale or an asset sale;
  • the purchase price and its terms (i.e., how it will be paid);
  • whether the buyer will pay a deposit, and if so, its terms;
  • the assets and liabilities included in the transaction;
  • whether the sales price includes working capital;
  • any key dates or milestones, such as a proposed closing date;
  • any contingencies or conditions for completing the transaction, such as the need to obtain regulatory approvals; and
  • the seller’s role, if any, following the transaction’s closing.

Contact Structure Law Group Today

Parties to an M&A deal often spend too little time negotiating a letter of intent, assuming they can “fix” any issues when negotiating the final purchase agreement. But this is usually a mistake. But even though most of a LOI is non-binding, it can still create a “moral obligation” that can affect a buyer or seller’s reputation should the deal fall apart. So it is always in a buyer or seller’s interest to take the LOI process seriously.

If you are involved in a potential deal and need legal advice from a qualified Texas mergers and acquisitions attorney, call SLG today at (512) 881-7500 or contact us online to schedule a consultation.