If your business strategy includes merging or acquiring another company, you may need to complete various types of paperwork. Contracts are key for locking the parties into specific actions and ensuring that no one breaks their promises. If you have a merger and acquisition (M&A) candidate in mind and the talks have begun, you are ready for the agreement that precedes the definitive contract.
A letter of intent (LOI) signals that the parties want to negotiate in earnest. Our experienced business lawyers can help you outline the initial conditions for business combinations and advocate for your interests. At Sparks Law, we routinely draft letters of intent in Atlanta and can prepare one that fits your needs and goals.
The basic premise of an LOI is to let a business owner know that a potential buyer is serious about negotiating or that a merger candidate is willing to talk further.
Mergers occur when two companies become one. They benefit the participating companies by infusing money into the smaller one and expanding market share for the larger one. Resultant companies are owned by shareholders of both since there is usually a stock exchange tied to the transactions. The new companies could be managed by executives from either or both companies.
Business owners who wish to sell their companies may be looking for an exit strategy. Alternatively, they may wish to operate as a subsidiary with more capital for expansion, or possibly to attain publicly traded status. Business owners interested in mergers or acquisitions should meet with a local attorney to discuss the necessary documents for such a transaction, including letters of intent.
A letter of intent is non-binding. This means the parties signing it do not have to go through with a business combination if, after further exploration, one or both parties find the deal unsuitable. The LOI contains preliminary conditions that are meant to help the parties explore the business deal before deciding to go through with it. Some of the conditions included in an LOI include an initial purchase price, a due diligence lock-up period, an estimated closing date, and a confidentiality clause.
The lock-up period specifies the amount of time the parties will negotiate without trying to shop the deal to others. Potential buyers are assured that the company looking to be acquired is not trying to find a higher bidder. Conversely, acquiring companies cannot be on the lookout for a more lucrative deal during the lock-up period.
Business owners need a lot of information about the M&A candidate with whom they are negotiating to ensure the deal is suitable for everyone. Gathering and assessing that information is called due diligence. Management should use a due diligence checklist, usually prepared by an experienced attorney, to ensure all areas of interest are addressed. Due diligence includes:
The letter of intent limits the time the parties can take to complete due diligence, preferably the same as the lock-up period. A lawyer at our Atlanta office could include terms for the due diligence period in a letter of intent.
Because due diligence is extensive and delves into confidential information about the companies, clauses protecting sensitive information should be included in letters of intent. Usually, business owners specify what information they consider confidential before sharing it.
Business combinations are critical in the business world because they allow companies to grow and prosper, living beyond their founders’ tenure. Letters of intent are a vital part of these complicated mechanisms because they give business owners the time and space to understand if the deal is right for them.
If you plan to sell, buy, or merge with another company, call Sparks Law to schedule your initial consultation. Our business lawyers are experienced in handling letters of intent in Atlanta and can put this knowledge to work for you.