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Home » What Is a Letter Of Intent In M&A & How To Write One – Cody Biggs

What Is a Letter Of Intent In M&A & How To Write One – Cody Biggs

What Is a Letter Of Intent In M&A & How To Write One - Cody Biggs

When you’re involved in a merger or acquisition, understanding the process and terminology is essential. Mergers and acquisitions (M&A) are complex endeavors but can be successful when done properly. One of the important pieces of documentation used during M&A transactions is a letter of intent. A letter of intent is an official document that defines an agreement between two parties and outlines terms for negotiations that may follow to reach a final agreement. In this blog post, Cody Biggs will discuss what a letter of intent is, why companies use this type of document in mergers and acquisitions, as well as how to create one effectively.

What Is a Letter Of Intent In M&A & How To Write One: Cody Biggs Explains

A letter of intent (LOI) is an agreement between two parties, says Cody Biggs, typically a buyer and a seller in the context of mergers and acquisitions. It outlines the main points of an intended transaction before the parties reach a final deal. The LOI serves as a starting point for negotiations, but it does not bind either party to complete the transaction or guarantee that any details contained in it will remain unchanged once an actual purchase contract is drawn up.

The specifics of what should be included in an LOI varies depending on the size, scope, and complexity of the proposed deal but typically includes key information such as names of both parties, type and amount of consideration, terms regarding due diligence, and further negotiation; specifications about how much time both parties have to agree or disagree; and any other details that are integral to the deal.

In an M&A context, the LOI is often seen as a non-binding precursor to a purchase agreement. It does not legally bind either party, but it does set out important information about the prospective transaction and provides a framework for further negotiation. According to Cody Biggs, an LOI should always include clear terms that define how each party can withdraw from negotiations in order for either side to protect itself from unwarranted legal action.

Recent research conducted by Deloitte reveals that 80 percent of mergers and acquisitions deals involve the use of letters of intent. The study found that having an LOI upfront helps speed up negotiations and reduces due diligence costs. It also helps protect both parties from any misunderstandings that may arise during negotiations and provides a structured process for further talks.

For example, in 2017, global medical technology company Medtronic announced its acquisition of Mazor Robotics Ltd., a medical device manufacturer based in Israel. The deal was facilitated by a letter of intent signed earlier that year. In the LOI, Medtronic agreed to acquire all of the outstanding ordinary shares of Mazor at $58 per share in cash. This agreement laid the groundwork for more detailed negotiations over the following months before the final purchase agreement was signed in December 2017.

Cody Biggs’s Concluding Thoughts

Overall, letters of intent provide an essential starting point for negotiations when it comes to mergers and acquisitions deals. Knowing how to draft an effective LOI is important for making sure that the process runs smoothly and that each party’s interests are adequately protected. According to Cody Biggs, by providing a framework for further negotiations and ensuring that both parties have a clear understanding of what they can expect, letters of intent facilitate the successful completion of M&A deals.