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Hi, I’m Brad Feld, a managing director at the Foundry Group who lives in Boulder, Colorado. I invest in software and Internet companies around the US, run marathons and read a lot.

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Letter of Intent: Foreplay

Comments (8)

As Jason and I launch into our new series on the Letter of Intent (LOI), we thought we’d start out like most LOI’s do – with a little foreplay.  To keep it simple, assume there are two primary parties in an M&A transaction – the “buyer” and the “seller” (for the time being, let’s not worry about complex deals that have more than two parties – this is a family blog after all – well, not really.) 

By the time the buyer presents the seller with an LOI, there have been meetings, discussions, dinners, expensive bottles of wine, lots of conference calls, and an occasional argument.  However, the buyer and the seller are still courting so they tend to be on their best behavior.  The LOI is typically the first real negotiation and the true ice breaker for the relationship.

In ancient times, when the first LOI was presented, someone crafted an introductory paragraph that starts off with something like the following:

Dear CEO of Seller:

We have greatly enjoyed our conversations to date and are honored to present you with this letter of intent to acquire <Seller’s Company>.  We look forward to entering into serious discussions over the next several months and reaching an agreement to acquire your company.  We’d like to thank you for entertaining our proposal, which follows:

While every company has their own style, most LOIs start off with some variation of this boilerplate paragraph.  Of course, you’ll find – later in the LOI – a qualifier that states that most everything in the LOI is non-binding, including the appearance of civility as part of the negotiation.  What would you expect in a world where ABC can launch a series called “Commander in The West Wing Chief”?

Next up – some real stuff – namely a discussion about one of the keys terms in the LOI – price.

  • http://www.shoelover.typepad.com Shoelover

    Great work on the terms sheet series. Really helped me out, saved me a fortune in legal “time”

    Regards,

    Shoelover

  • http://p-air.tribe.net P-Air

    Brad, you tease…still! “Where’s the beef?!” :-)

  • jmc

    Brad,

    Another good topic might be “Prospecting for M&A — How to Cold Call a Target”.

    We are in the early stages of a rollup strategy and occasionally find ourselves cold calling targets. It would be great to learn how others script that call….

  • http://www.calltower.com Harris Loeser

    Hi, I am researching rollup strategies because we are in the outsourced unified telecommunications service provider business and have some experience of prospects who need communications as they consolidate/update organizations. And we see that updated communications infrastructure and especially interfaces can be very useful tools in amalgamation.

    So, long winded as that is, I am looking for a way to see the flow of m & a deals and rollups deals in the middle market. (50 – 2000 employee “seats”).

    Google search and alerts appear to be marginally useful to find these deals.

    Any suggestions?

    Harris Loeser
    hloeser@calltower.com
    415-869-8979

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