Mutual expression of a business sale often comes with a Letter of Intent. This document tests the waters before negotiations become serious. The buyer’s intent will be laid out along with other important information such as confidentiality. The Letter of Intent, excluding the confidentiality agreement, is not a binding legal document unless both parties have signed it.
The Preliminary Agreement
Future negotiations will spring board from the Letter of Intent. These preliminary agreements make sure the buyer and seller see eye to eye on the important minutia of a sale. A proper Letter of Intent will include proposed price, closing date, payment terms, due diligence terms and negotiation terms. Depending on the nature of the sale, a Letter of Intent may have several drafts or not exist at all. A less thorough, but completely acceptable, option is a term sheet. This document has the same information formatted into a bulleted list.
The Next Step
Once the Letter of Intent is agreed upon, signatures must be provided. The buyer will provide a monetary sum as a down payment. Now that the letter is signed, it is a legal document. The letter can be presented to third parties for investment or financing. The buyer, under the terms of the letter, will begin due diligence along with negotiation for the sale. Parts of the Letter of Intent may end up in the final purchase agreement upon the discretion of a transaction attorney.
The Importance of Confidentiality
A Letter of Intent is non-binding until the signatures are applied. This truth applies to everything but the confidentiality clause. This part of the letter requests that the buyer and seller both keep the negotiations private. Any information exchanged is sensitive; sharing with outside parties is prohibited. Only those directly involved in the sale transaction should be informed. Information about a sale could be detrimental to the business if a competitor finds out or employees become alarmed. A damaged reputation is very hard to fix. Maintaining confidentiality during the entirety of a transaction is the most crucial aspect for success. Due to the sensitivity of the situation, many transactions are guided by a transaction specialist. This experienced intermediary, like The Tenney Group, helps both parties understand and follow the terms laid out. Their unbiased knowledge of the situation will have a positive influence on the sale.
The Tenney Group has over 35 years of experience in just one thing: Transportation Business Sales. Questions, concerns or inquiries about an upcoming sale, exit strategy or acquisition can be directed through their contact form on thetenneygroup.com. They provide free initial consultations. If it’s transportation, it’s the Tenney Group.