A letter of intent, often referred to as an LOI, is essentially the first formal document in a sale process between a buyer and a seller. It not only establishes the intent of two companies to move forward into a sale process, but it sets some terms for the process that sellers should carefully consider.
Tony Montanaro, transaction advisory partner with Louis Plung & Company, talks on the Smart Business Dealmakers Podcast about LOIs, and what sellers need to know about the terms within them before moving forward with a deal.
Here's an excerpt:
“We talk about an LOI being non-binding, but the terms within this agreement, if things come up during the sales process of putting together the actual purchase agreement, I can tell you from experience, the first thing people do is they go back to the LOI and say, ‘How did we address this in the LOI.’ If it was addressed, if it was defined in the LOI, then it's going to be very, very difficult to negotiate new terms on those provisions later on in the deal.” - Tony Montanaro.
You can catch the full conversation on the podcast.
