Letters of Intent (LOIs) are important in M&A transactions for several reasons:

Establishing mutual interest: An LOI signals that both parties have a genuine interest in pursuing the transaction, providing a foundation for further negotiations and due diligence.

Outlining key deal terms: LOIs typically include the main terms and conditions of the transaction, such as purchase price, payment structure, and expected closing date. This helps align the expectations of both parties before engaging in more detailed negotiations.

Demonstrating commitment: By signing an LOI, both parties demonstrate their commitment to the transaction, which can help build trust and confidence between them.

Exclusivity : LOIs often contain an exclusivity clause, preventing the seller from negotiating with other potential buyers for a specified period. The fact that the business terms of an LOI are usually non-binding does not negate the LOI’s importance -it serves as a crucial step in the M&A process by setting the stage for more in-depth negotiations, due diligence, and ultimately, the closing of the transaction. Because the LOI provides the roadmap for the deal, you should involve your legal and M&A advisory teams at this stage, if you haven’t already.