Mergers & Acquisitions...
Merfeld & Schine, Inc.
Selling Your Company, Step 10:
Letter of Intent (Non-binding Proposal)
We encourage prospective buyers to submit a non-binding letter of intent as soon as is reasonable. A letter of intent is, in essence, an invitation to enter into serious negotiations about selling your business. That is, despite the fact that it is largely non-binding, it states the prospect's thinking in terms of valuation, deal structure, post-sale plans, etc.
We look at the LoI as a vehicle to establish whether business buyer and business seller are in the same ballpark and whether negotiations are likely to be fruitful. For example, a buyer submitting a LoI stipulating that the seller finance 75% of the acquisition deal with no security probably would be eliminated from consideration. However, a LoI from a private equity group with an offer near full asking price with 85% cash upfront and with a clear transition plan would be taken very seriously.
At the very least, a letter of intent will establish whether or not you and the buyer are within negotiating range of a deal to sell your company. If you are so far apart that a deal is unlikely, it is best for all concerned to learn that early on rather than after a lot of time is wasted. Conversely, if a deal is likely, a good letter of intent will move the process from the discussion phase to the serious negotiation phase.
We advise buyers that for the time being, it is reasonable to assume that everything they have been told is true and accurate. They will be able to verify the accuracy of the documentation they’ve received during the due diligence. The verification process, (due diligence) comes after buyer and seller have come to terms on a deal but before the point where the buyer is legally bound to proceed with the deal. That is, if due diligence turns up material inaccuracies or discrepancies, the buyer has the right to cancel or renegotiate the deal.
Next step: Negotiate Details of Offer
Back to Summary of the Selling Process page
We focus on (but do not entirely limit to) companies with sales in the $1MM to $20MM range located in the New England States: MA, CT, NH, RI, VT, ME.
If any of our M&A services fit your needs, please feel free to contact us for a free consultation without obligations or sales pressure. Fill out this simple form or call us (401-751-3320)
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