"All Hail Letters of Intent"
Author: Fraser, Jill Andresky
Issue: October, 1993, page 044
Letters of intent are an attempt to put in writing all the potential deal-breaking
points in a sale.
If you're planning a major purchase or sale -- whether of a company or a
key asset or a division -- a well-crafted letter of intent can help you avoid
costly hitches later on. And since you can do it yourself, it costs virtually
nothing.
"These letters represent a commonsense attempt to put in writing all the
potential deal-breaking points in a sale," explains Roger Knight, a director in
the national mergers-and-acquisitions group of Coopers & Lybrand in New
York City. "Buyers and sellers use these to make certain they're going to be
able to come to a meeting of the minds before they start spending on costly
legal or banking fees."
Here's a quick blueprint for a letter of intent (the buyer generally writes the
first draft, which then gets tinkered with by all parties):
Be brief. "In somewhere between one and six pages, elaborate on all the
key points of your deal," says Knight. Don't bother to include all kinds of
legal caveats: letters of intent are generally nonbinding documents that
almost always leave buyers or sellers room to pull out if they get cold feet.
Cover the finances. Include all relevant details, including purchase terms
(total costs, cash versus securities payments, immediate and future payment
schedules), as well as conditions for closing.
Be thorough. If the buyer insists on supplier commitments (such as pricing
levels) -- and the seller knows they will be impossible to obtain -- you're
better off discovering that during the letter-of-intent stage, says Knight,
"before you embark on more costly stages, such as due-diligence
investigations and financing applications."
Do it yourself. "Let your lawyer and financial adviser read your letter of
intent, but there's no reason to pay costly fees to have anyone else write or
amend it unless you're averse to writing. After all, by this point in
negotiations, you probably know the deal best." |
