Letter of intent

A letter of intent gives both parties a common description of the transaction they are considering. Useful terms include the proposed buyer, price and earnings basis, payment timing, treatment of cash and debt, working capital expectations and the seller’s handover. Without those details, agreement on a headline number can conceal disagreement about what must actually be delivered at completion.

The collection usually describes an LOI as nonbinding and subject to diligence, financing and final documentation. That description is not a legal conclusion about every clause in every letter. Exclusivity, costs and other obligations need their own review. The source also discusses a nonexclusive standing offer when price expectations remain apart: it keeps an offer available without pretending the negotiation is complete. Watch source Watch source

Use the LOI to expose assumptions early. Which earnings period supports the multiple? Is a later seller payment fixed or conditional? How much cash stays inside the company? What financing evidence will the seller accept at each stage? A countersigned LOI can help a debt broker obtain a meaningful response, but cannot create loan approval by itself. The quality of an LOI lies in reducing ambiguity and directing the next work, not in making an uncertain transaction appear finished. Watch source

Follow the connections

Enterprise value · Working capital · Due diligence.

Continue in the course: Negotiating an LOI.