7 Things to do before signing a Letter of Intent (LOI)

Business owners will protect the value of their enterprises as the balance of power in negotiations to sell their companies swings from Buyer to Seller if they take these 7 things seriously.

  • MAKE SURE CUSTOMER CONTRACTS HAVE “SUCCESSOR” CLAUSES
    Have customers sign long-term, standardized contracts, including a clause stating that the obligations of the contract survive any change in company ownership.
  • NURTURE AND PREPARE A GROUP OF 10-15 “REFERENCE-ABLE” CUSTOMERS
    Acquirers will want to ask your customers why they do business with you and not your competitors. Before you sign the Letter of Intent (LOI), cultivate a group of customers to act as references.
  • ENSURE YOUR MANAGEMENT TEAM IS ALL ON THE SAME PAGE
    During Due Diligence, acquirers will want to interview your managers without you in the room. They will want to find out if everyone in your company is pulling in the same direction.
  • CONSIDER GETTING AUDITED FINANCIAL STATEMENTS
    An acquirer will have more confidence in your numbers and will perceive less risk if your books are audited by a recognized accounting firm.
  • DISCLOSE THE RISKS UP FRONT
    Every company has some risk factors. Disclose any legal or accounting hiccups before you sign the Letter of Intent (LOI).
  • NEGOTIATE DOWN THE DUE DILIGENCE PERIOD
    Most acquirers will ask for a period of 60 or 90 days to complete their due diligence. You may be able to negotiate this down to 45-days or perhaps even 30-days with some financial buyers. If nothing else, you will alert the acquirer to the fact that you are not willing to see the due diligence period drag out past the agreed-to-close date.
  • MAKE IT CLEAR THERE ARE OTHERS AT THE TABLE
    Explain that, while you think the acquirer’s offer is the strongest and you intend to honor the “no-shop” provision of the Letter of Intent (LOI), there are other interested parties at the table.