There are different strategies regarding this topic. The letter of intent helps initiate discussions and promotes negotiations when buying a business. The purpose of a Letter of Intent (LOI) for a buyer is to ensure exclusivity while incurring due diligence fees. For a seller, the goal is to commit when the buyer is qualified and as interested as possible. At this point, the names of employees, customers and suppliers are not shared.
Sometimes the LOI is introduced even before the parties meet. For us, this strategy is too much in favor of the buyer and poses a risk to the seller. What is the most important is understanding the seller’s financial expectations and an indication of the buyer’s intentions so as not to waste time in the transaction. Some will use the term “Expression of Interest” instead.
Our strategy is to ensure the real commitment of both parties to do business together. It is better to invest more time at this stage and at the same time maximize the probability of success. Time and expense will be invested by the parties mutually and in the event of failure, it is a major distraction for the vendor who must operate their business through these stages.
We prefer to have had a meeting between the parties before finalizing the LOI and starting the due diligence. It is necessary to ensure a good understanding of the role of the owner of the company to be sold, as well as of his/her values, the strategy of the company, its team, the nature of the operations and the clientele (especially by industry or by segments, client concentration, etc.).
When granting exclusivity, which is the main purpose of a letter of intent, one must be confident of the chances of success. In the last few years, our success rate has been extremely high. In return, the time to finalize a letter of intent was longer and the number of versions not insignificant.