Letter of Intent (LOI)

The Letter of Intent, or LOI, is a document drafted by the buyer and signed by both parties. In most cases, the document is not legally binding and serves the purpose of outlining the terms under which the transaction is to proceed. The LOI is crucial for the course of a transaction as it establishes all significant terms that will serve as the basis for future negotiations. The LOI is typically signed before the start of the due diligence process, and in cases where unexpected developments arise, the key terms can be revised. The most common terms included in the LOI are:

• Purchase price and conditions
• Financing and structure of the transaction
• Due diligence process and deadlines for bid submission
• Exclusivity of the buyer or buyers in the transaction
• The seller’s company’s assets and liabilities, including working capital
• Conditions that must be met for the continuation and completion of the deal

After the LOI is signed, the transaction process continues. The seller will provide buyers with a data room and other confidential files. The buyers will conduct a due diligence review to confirm or question the assumptions stated in the LOI.