Mergers & Acquisitions from A to Z

By Andrew J. Sherman | Go to book overview

CHAPTER 4
The Letter of Intent and Other
Preliminary Matters

At this stage of the transaction, both the seller and the buyer (and their respective advisors) have developed a strategic plan and a tentative timetable for completion of the deal, have completed their analysis as to why the transaction is a strong financial and strategic fit for each party, and hopefully have taken the time to understand each other’s perspective and the competing as well as aligned objectives. The field of available candidates has been narrowed, the preliminary “get to know each other” meetings have been completed, and a tentative selection has been made. After the completion of the presale review, the next step involves the preparation and negotiation of an interim agreement that will guide and govern the conduct of the parties up until closing.

Although there are certain valid legal arguments against the execution of any type of interim document, especially since some courts have interpreted such documents as being binding legal documents (even if one or more of the parties did not initially intend to be bound), it has been my experience that a letter of intent (LOI), which includes a set of binding and nonbinding terms as a road map for the transaction, is a necessary step in virtually all mergers and acquisitions. I have found that most parties prefer the organizational framework and psychological comfort of knowing that there is some type of written document in place before proceeding further and before significant expenses are incurred. It is also critical to deal with as many of the potential due diligence problems or surprises as possible at this early stage. The ability

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