Mergers and acquisitions drive corporate America, and they begin with a letter that shows the parties want to negotiate a deal. A letter of intent (LOI) is a useful tool if your company decides to explore a business combination with another company, either as a growth or exit strategy.
If you are considering making a business deal or merging your company with another, talk to an attorney about letters of intent in Alpharetta. A skilled lawyer at Sparks Law could help draft a letter that includes all your preliminary conditions and meets your business needs.
Primarily used in corporate mergers and acquisitions, the LOI alerts a seller that a buyer is serious about striking a deal in an acquisition or discussing a merger.
Mergers are meant to infuse capital into the smaller company and expand market share for the larger company by offering compatible products. Shareholders from the merged companies own the new entity through their stock holdings, and management can be from either or both companies.
Friendly acquisitions occur when one company desires to be bought—for instance, a private company that will attain public status trading on a stock exchange. Often, the acquired company’s senior management is looking for an exit plan that suits their retirement needs. A business owner considering a merger or acquisition should contact a nearby attorney to review or draft an LOI.
Unlike a definitive agreement, a letter of intent does not bind the parties to a merger or acquisition. However, it does contain conditions that both parties must adhere to while considering the post-transaction company. Some of the essential conditions included in an LOI are:
During a lock-up period, the negotiating parties can only work with each other to come to a final agreement. This prevents companies from looking for a higher bidder or other deals.
In the due diligence stage, both parties acquire pertinent information about their negotiating partners to see if the companies are a good fit. Due diligence delves into financial matters, management backgrounds, and the other company’s market position. Management is given a detailed questionnaire to aid in the other company’s due diligence. Some areas that are usually included in due diligence requests are:
The letter of intent should set a time limit to complete due diligence, which may coincide with the lock-up period. Most often, this period lasts from thirty to 120 days. A skilled attorney at our Alpharetta office could craft a letter of intent and due diligence list that sets the tone for the parties’ negotiations.
When discussing a prospective business combination, negotiating parties will share confidential information. Letters of intent should contain confidentiality clauses to protect sensitive information.
Mergers and acquisitions are complicated and require many considerations before coming to an agreement. Having a letter of intent gives both parties time to decide if the business combination will be beneficial.
If you are considering selling your company or acquiring another one, call the legal team at Sparks Law to discuss letters of intent in Alpharetta. Our dedicated lawyers could work with you throughout the negotiating process and draft documents that protect and support your business interests.