Letter of Intent - Non binding14 Jan 2021 18:52
Extract from Forbes
'Frequently, a buyer will present the selling company with a non-binding letter of intent or term sheet that lacks detail about key deal terms. Large serial buyers usually leave the impression that these preliminary documents are more a formality internal to their process, and therefore should be quickly signed so that the buyer can move without delay to the next “more important” stages of the M&A process (such as due diligence and negotiating definitive acquisitions documents, including continuing employment arrangements).
However, a selling company’s bargaining power is greatest prior to signing a letter of intent or term sheet. These documents, although non-binding with respect to business terms, are extremely important for ensuring the likelihood of a favorable deal for a seller. Once the letter of intent or term sheet is signed or otherwise finalized, the leverage typically swings to the buyer. This is particularly the case where the buyer requires an exclusivity or “no shop” provision prohibiting the seller from talking to other bidders during negotiation of a definitive acquisition agreement. To avoid this trap, the selling company needs to negotiate the terms of the letter of intent or term sheet, with the assistance of its legal and financial advisors, as if it were a binding document.
The key terms to negotiate in the letter of intent or term sheet'
GLA