Posted 09 Dec 2007
A letter of intent is a pre-acquisition agreement that shapes the preliminary understandings of the parties. Although usually non-binding (for the most part), it serves as the bridge between initial negotiations and the purchase agreement. And that’s important because the letter of intent should facilitate the deal.
The letter of intent will set forth the proposed deal structure, price, payment terms, and other general terms–a transaction summary. But more importantly, the letter of intent spells out the preconditions to closing the deal, such as due diligence process issues, purchase agreement construction, and any nondisclosure requirements.
Most of the time, the letter of intent does not create a binding obligation for the parties to do the acquisition. But that doesn’t mean a non-binding letter of intent is a document without a purpose.