A guide to understanding and negotiating a letter of intent (LOI) or acquisition offer.
You'll likely attract more than one acquisition offer when you list on Acquire.com.
The question is how do you decide which is the best one for you?
Learn how to review, negotiate, and respond to letters of intent below.
1. Review the purchase price, terms, and conditions
Acquisition offers will come in the form of a letter of intent (LOI).
Although not usually legally binding, an LOI can include legally binding terms, especially in lieu of a signed asset purchase agreement (APA). Hire counsel to help review the terms.
An LOI is typically valid for a week or more and includes:
- Assets to be acquired
- Deal structure and payment terms
- Escrow and closing conditions
Unsure how to review and negotiate a letter of intent? Speak to one of our customer success managers to help you get the deal you deserve.
2. Negotiate the price and deal structure
Once you receive the LOI, review the price and terms before the offer expires and then negotiate anything you’re unhappy with. Every point of an LOI is negotiable.
For example, you might:
- Suggest a shorter exclusivity period.
- Negotiate a better price or deal structure.
- Minimize your exposure to reps and warranties.
Accept or reject the final LOI
You must accept or reject every LOI you receive. Ignoring them sends the wrong message and impacts your reputation on the marketplace.
Once you accept an LOI, you:
- You enter the exclusivity period.
- You can’t talk to or negotiate with other buyers while your LOI is valid. All other buyers' access to your startup will also be revoked.
- Your acquisition moves into the closing stages.
Managing offers with Acquire.com founder, Andrew Gazdecki
- What Is a Letter of Intent?
- How to Evaluate a Letter of Intent
- How the Components of an Offer Affect Your Acquisition
Representations and warranties
A list of representations about your startup that have encouraged the buyer to acquire it, which although correct at the time, might turn out to be false later, and how you’ll indemnify the buyer if that happens. It’s a bit like an insurance against misrepresentation and fraud.
Exclusivity (no-shop clause)
Your LOI will include an exclusivity or no-shop clause which prevents you from discussing or negotiating with other buyers while the LOI is valid. The exclusivity period starts the moment you accept the LOI and continues until the offer expires.
If there’s a chance you or your employees might compete against the buyer post-acquisition, the buyer will include a non-competition clause in the LOI to prevent it. This clause prevents you from operating a similar business in the same industry for 12 months or more.