I got a non binding letter of intent from the Hospital next to me to buy my condo. Is this basically what ur explaining? Or will they eventually for sure buy?
Hey Brett, great video! One question, could you shed some light on the difference between LOI vs NBO vs Term Sheet? From your explanation, I think LOI and Term Sheet are sort of the same thing, correct? Whereas an NBO perhaps resembles an LOI but only includes price and related considerations (like how it will be paid out and where the money will come from)? Thanks so much!
I personally think that they could set a more trust worthy agreement upon the buyer and the seller + commit to strictly focus on getting done what needs to be done to get the deal closed.Would a LOI also be useful to protect a your deal from being stolen by Ex; someone that you have share some info. with about the acquisition, whether its a team member or just anyone working with you as an investor or anything in that particular case.Would it be useful for that and what other way could you position yourself on protecting your deal?Great content always by the way.
Jose, yes, an LOI is useful for protecting the opportunity for the buyer. Most LOIs have an exclusivity clause that prohibits the seller from shopping the business to other prospective purchasers (or even having conversations that might lead to an offer from another party) for somewhere between 60-120 days (the time period varies, although most private company deals have an exclusivity period within that range).
Your videos from 6 years ago are soo much better, more organized and prepared in advance then the videos made 3-4 years ago. And what's up with that terrible back ground music?
Sure... They are important. It is the practical entity representing the deal before the actual deal being done. Plus the trust between the dealers is one of the key factors driving the deal and the tendency of the buyer to buy or acquire. So though the letter does not bind them, it is actually a practical binded deal.
good points, Sethu. Agreed, that most parties to LOIs are representing that they want to close (i.e., they're not wasting people's time, although I am sure that happens occasionally), so they're great to smoke out tire kickers!
Sometimes clients want to skip the LOI and go straight to a purchase agreement. However, you are right that buyers want to lock down sellers with a binding exclusivity clause, and that's typically done with an LOI. You could put exclusivity in a binding purchase agreement. However, the buyer would not have the benefit of that concept until the purchase agreement is signed. I suppose a buyer could require the seller to sign a one-page exclusivity agreement, although that is not an agreement we run into often (i.e., hardly ever).
came across a "Non-Binding Letter-of-Intent " on an annual report to acquire 50% equity, your channel is definitely the place to go to for business jargon like this . THANK YOU
Hi Brett thanks for this video. If one is to do an initial contact either through email or printed mail to express his initial intent of purchase, how does he go about it? And is it still an LOI?
No, you are describing a pre-LOI situation. We use the term "indication of interest" to refer to a brief letter or simple email with a lot less information/fewer terms than an LOI that is not expected to be signed by the seller(s). Because an indication of interest has less substance than an LOI and is typically presented (if used at all) earlier in the process than an LOI, it is considered less certain, i.e., that the buyer is not necessarily as committed to buying the target company. Still, indications of interest have their place, especially if the target company was not actively seeking buyers. You mention sending it by print mail. I am not sure if you are referring to something along the lines of a marketing campaign to generate potential seller leads. Suppose a prospective acquirer sends out emails or print mailers to lots of potential sellers to drum up acquisition opportunities. In that case, we will not refer to that type of communication as an indication of interest. I'd call that a prospecting communication. We sometimes use the term "feeler" (i.e., putting out a "feeler" to express interest), although even that term implies something more specific and direct than a broader marketing campaign. Brett
this is a great question! Yes, it could. The absolutely critical thing to do in a letter of intent is to be clear regarding what sections are legally binding (e.g., confidentiality, exclusivity) and which are not binding (e.g., all the deal terms). Failing to do that properly by, for example, (a) not talking about binding vs. non-binding at all or (b) incorrectly labeling non-binding deal terms as binding could get you into a position where the other side tries to enforce the LOI. Somewhat relatedly, parties will sometimes say something like, "both parties agree to negotiate definitive agreements in good faith and to use the best efforts to complete the closing" or something along those lines that puts a nebulous standard on each party to get the deal done. We would almost always advise a client to remove that language if it applies to them (if they're bound by it)
@@BrettCenkus Thanks Brett! Would you do a video on the negotiation side of an M&A deal? How does it work? Any tricks that can be played by the lawyers of either side?
There is no substantive difference, at least not in how most U.S. M&A lawyers use them. Non-substantively, a Letter of Intent is structured/formatted as a letter.
not common at all (rare). If the parties can get the binding (definitive) purchase agreement and other legal documents prepared and negotiated that quickly after signing the LOI, they generally would not sign an LOI at all -- they'd go directly to the binding agreements.
@@tishfourseam2890 perhaps I didn't explain that well enough. The purpose of the LOI is to ensure that the buyer and seller are on the same page generally as to all the key terms of a deal and for the buyer to "lock up" the seller for some time while the buyer performs the rest of its due diligence, secures financing, prepares to integrate the selling company, and sometimes other things that the buyer needs to do pre-closing. The "lock up" is through an exclusivity clause, which prohibits the seller from shopping the deal to other potential buyers. During the time between signing the LOI and closing the deal, the buyer and seller prepare and negotiate legal agreements (the "binding" or "definitive" purchase agreement is the key agreement) that contain all the terms of the deal (whereas an LOI just hits the broad strokes). Assuming the buyer still wants to do the deal, once the definitive purchase agreement and other legal documents are fully-negotiated, the parties close the deal. Back to your question, if the parties could get everything done and close only five days after signing an LOI, there wouldn't be any need for the LOI. That is such a brief period of time that the exclusivity ("lock up") isn't a big deal probably (i.e., how much can the seller shop the deal in a few days?) and clearly, the parties were on the same page regarding the key deal terms. In fact, unless it's a super simple deal for not much money (a few hundred thousand dollars or less), the definitive purchase agreement has lots of terms to negotiate that aren't in an LOI. The parties must have already talked a lot of those through if they could possibly get the definitive purchase agreement prepared and signed off on in only a few days. In this case, you wouldn't bother signing an LOI at all. It is not required or critical to sign an LOI, so the buyer and seller would go straight to the binding/definitive agreements and skip the LOI.
@@BrettCenkus you explained just fine. This deal is like someone from the 4th grade came in and called it opposite day. I need to switch accounts to get in more detail. I just couldn't wrap my mind around the big hurry. Just like you said. You're both on the front porch...both expecting the good night kiss...why do you need to ring the dang doorbell first???
Touch base on an elevator deal. Good topic to open discussion on creating the future mega exit
I got a non binding letter of intent from the Hospital next to me to buy my condo.
Is this basically what ur explaining? Or will they eventually for sure buy?
we don't work alone, what do we do if the broker is asking for NDA from each individual? how can we go around that?
Hey Brett, great video! One question, could you shed some light on the difference between LOI vs NBO vs Term Sheet? From your explanation, I think LOI and Term Sheet are sort of the same thing, correct? Whereas an NBO perhaps resembles an LOI but only includes price and related considerations (like how it will be paid out and where the money will come from)?
Thanks so much!
Where and how do I find buyers while keeping the sale private
Really useful info, thanks!
I personally think that they could set a more trust worthy agreement upon the buyer and the seller + commit to strictly focus on getting done what needs to be done to get the deal closed.Would a LOI also be useful to protect a your deal from being stolen by Ex; someone that you have share some info. with about the acquisition, whether its a team member or just anyone working with you as an investor or anything in that particular case.Would it be useful for that and what other way could you position yourself on protecting your deal?Great content always by the way.
Jose, yes, an LOI is useful for protecting the opportunity for the buyer. Most LOIs have an exclusivity clause that prohibits the seller from shopping the business to other prospective purchasers (or even having conversations that might lead to an offer from another party) for somewhere between 60-120 days (the time period varies, although most private company deals have an exclusivity period within that range).
@@BrettCenkus makes great sense.Thank you for sharing that value information with me.
@@josequintana2507 You're welcome, Jose.
Your videos from 6 years ago are soo much better, more organized and prepared in advance then the videos made 3-4 years ago. And what's up with that terrible back ground music?
Hey great Content! Can you do a video on roll up mergers?
yes, I will do that soon, Antonio!
Great information.
Sure... They are important. It is the practical entity representing the deal before the actual deal being done. Plus the trust between the dealers is one of the key factors driving the deal and the tendency of the buyer to buy or acquire. So though the letter does not bind them, it is actually a practical binded deal.
good points, Sethu. Agreed, that most parties to LOIs are representing that they want to close (i.e., they're not wasting people's time, although I am sure that happens occasionally), so they're great to smoke out tire kickers!
I'm curious why anyone especially a buyer would not want to use an LOI with exclusivity.
Sometimes clients want to skip the LOI and go straight to a purchase agreement. However, you are right that buyers want to lock down sellers with a binding exclusivity clause, and that's typically done with an LOI. You could put exclusivity in a binding purchase agreement. However, the buyer would not have the benefit of that concept until the purchase agreement is signed. I suppose a buyer could require the seller to sign a one-page exclusivity agreement, although that is not an agreement we run into often (i.e., hardly ever).
came across a "Non-Binding Letter-of-Intent " on an annual report to acquire 50% equity, your channel is definitely the place to go to for business jargon like this . THANK YOU
I need help putting one together
Hi Brett thanks for this video. If one is to do an initial contact either through email or printed mail to express his initial intent of purchase, how does he go about it? And is it still an LOI?
No, you are describing a pre-LOI situation.
We use the term "indication of interest" to refer to a brief letter or simple email with a lot less information/fewer terms than an LOI that is not expected to be signed by the seller(s). Because an indication of interest has less substance than an LOI and is typically presented (if used at all) earlier in the process than an LOI, it is considered less certain, i.e., that the buyer is not necessarily as committed to buying the target company. Still, indications of interest have their place, especially if the target company was not actively seeking buyers.
You mention sending it by print mail. I am not sure if you are referring to something along the lines of a marketing campaign to generate potential seller leads. Suppose a prospective acquirer sends out emails or print mailers to lots of potential sellers to drum up acquisition opportunities. In that case, we will not refer to that type of communication as an indication of interest. I'd call that a prospecting communication. We sometimes use the term "feeler" (i.e., putting out a "feeler" to express interest), although even that term implies something more specific and direct than a broader marketing campaign.
Brett
Would a misstep in drafting a Letter of Intent make it become a legally binding doc?
this is a great question! Yes, it could. The absolutely critical thing to do in a letter of intent is to be clear regarding what sections are legally binding (e.g., confidentiality, exclusivity) and which are not binding (e.g., all the deal terms). Failing to do that properly by, for example, (a) not talking about binding vs. non-binding at all or (b) incorrectly labeling non-binding deal terms as binding could get you into a position where the other side tries to enforce the LOI. Somewhat relatedly, parties will sometimes say something like, "both parties agree to negotiate definitive agreements in good faith and to use the best efforts to complete the closing" or something along those lines that puts a nebulous standard on each party to get the deal done. We would almost always advise a client to remove that language if it applies to them (if they're bound by it)
@@BrettCenkus Thanks Brett! Would you do a video on the negotiation side of an M&A deal? How does it work? Any tricks that can be played by the lawyers of either side?
@@Imarvitaliko yes, I'll do that. That's a great topic!
Hey!
What is the difference between a Term Sheet and a Letter of Intent?
There is no substantive difference, at least not in how most U.S. M&A lawyers use them. Non-substantively, a Letter of Intent is structured/formatted as a letter.
@@BrettCenkus Thankyou!
@@abhishekbansal3417 You're welcome!
How common is it to have executed LOI with closing less than 5 days later?
not common at all (rare). If the parties can get the binding (definitive) purchase agreement and other legal documents prepared and negotiated that quickly after signing the LOI, they generally would not sign an LOI at all -- they'd go directly to the binding agreements.
@@BrettCenkus this whole thing is way over my pay grade. Thank you for your time!
@@tishfourseam2890 perhaps I didn't explain that well enough. The purpose of the LOI is to ensure that the buyer and seller are on the same page generally as to all the key terms of a deal and for the buyer to "lock up" the seller for some time while the buyer performs the rest of its due diligence, secures financing, prepares to integrate the selling company, and sometimes other things that the buyer needs to do pre-closing. The "lock up" is through an exclusivity clause, which prohibits the seller from shopping the deal to other potential buyers. During the time between signing the LOI and closing the deal, the buyer and seller prepare and negotiate legal agreements (the "binding" or "definitive" purchase agreement is the key agreement) that contain all the terms of the deal (whereas an LOI just hits the broad strokes). Assuming the buyer still wants to do the deal, once the definitive purchase agreement and other legal documents are fully-negotiated, the parties close the deal. Back to your question, if the parties could get everything done and close only five days after signing an LOI, there wouldn't be any need for the LOI. That is such a brief period of time that the exclusivity ("lock up") isn't a big deal probably (i.e., how much can the seller shop the deal in a few days?) and clearly, the parties were on the same page regarding the key deal terms. In fact, unless it's a super simple deal for not much money (a few hundred thousand dollars or less), the definitive purchase agreement has lots of terms to negotiate that aren't in an LOI. The parties must have already talked a lot of those through if they could possibly get the definitive purchase agreement prepared and signed off on in only a few days. In this case, you wouldn't bother signing an LOI at all. It is not required or critical to sign an LOI, so the buyer and seller would go straight to the binding/definitive agreements and skip the LOI.
@@BrettCenkus you explained just fine. This deal is like someone from the 4th grade came in and called it opposite day. I need to switch accounts to get in more detail. I just couldn't wrap my mind around the big hurry. Just like you said. You're both on the front porch...both expecting the good night kiss...why do you need to ring the dang doorbell first???
@@tishfourseam2890 yep, no point!