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Letters of Intent/Offers to Purchase a Business
Letters of intent can sometimes be very vague—not addressing all the information about the price and terms of the proposed purchase. We have found that, when this is the case, it inevitably results in problems, issues, and misunderstandings during the subsequent negotiations.
To fulfill our obligations to you, we only entertain serious and motivated prospective buyers. A letter of intent drafted with very vague terms allows the buyer, and the buyer’s accountants and lawyers, to wear the seller down with constant modifications and the introduction of new factors that the seller couldn’t have envisioned. This “deal fatigue” is very stressful for sellers and can lead to a deal that fails to meet the seller’s objectives.
In order to protect you from this kind of situation, we offer buyers two choices:
1. Conditional Offer to Purchase
The buyer will instruct us to draft a Conditional Offer to Purchase that establishes the:
- Purchase price, including how and when it will be paid
- Payment terms
- The terms and especially the security, if vendor financing is provided
- Date of closing
- Amount of working capital included in the purchase price
- Any material terms that would be considered fundamental to the deal
- Basic representations and warranties
2. Letter of Intent
We understand that some buyers will balk at using our offer and insist on providing a letter of intent. This is acceptable only if it addresses all of the above requirements.
Subsequent Steps
- The prospective purchaser will be required to provide a deposit (held in escrow) as a sign of good faith.
- Upon acceptance of the offer or letter of intent, we will address any further questions about the vendor’s business and, if option A is used, develop a plan for the removal of each condition of the offer.
- The Definitive Purchase and Sale Agreement, materially containing all elements in the offer or letter of intent, will replace the offer or letter of intent prior to closing.
