What Should You Include in the Letter of Intent?
Source: The Marc Rosenberg Blog
The following includes excerpts, reproduced with permission, from a blog entry by Marc Rosenberg.
There is no such thing as a standard Letter of Intent (LOI). I've seen all types, ranging from some that look like a mini-merger agreement (long and sophisticated) to those consisting of little more than typewritten notes on the buyer's letterhead (short and sweet). Besides obvious things like date of merger, purchase price, and payout terms, be sure to address these items:
- How will the seller's capital be accounted for and handled? Specifically, will client payments after the merger first be applied to the seller's WIP and A/R or to the buyer's?
- Buyers who don't want the seller to work indefinitely should be as specific as possible about the length of time the seller may continue working. When this is not clarified up front, buyers can have a delicate problem dismissing an unwanted seller a year or two down the road.
- How will payments to the seller be taxed?
- The buyer's obligation to hire and retain the seller's personnel.
- Efforts the buyer will be expected to make to retain the seller's clients and how billing rates will change, if at all.
Click this link for a copy of all 14 Items That Should be Considered for Inclusion in the LOI.
For the complete entry, read “Merger Letters of Intent – 14 Items That Should Be Included.”
From The Marc Rosenberg Blog, November 10, 2014, blog.rosenbergassoc.com.