This week's M&A Minute continues from last week’s theme, going a bit more in depth on when it might make sense to skip the letter of intent. Letters of Intent (LOI) are a staple of M&A practice, but they are not mandatory. In some circumstances, skipping the LOI stage altogether is the better approach. Understanding the advantages and disadvantages is essential for any buyer or seller. The case for the LOI is compelling. First, it helps identify deal breakers early. Threshold issues that can make or break the deal are surfaced before the parties invest heavily in due diligence and legal fees. Second, it focuses negotiations: if the principal terms are resolved at an early stage, drafting the definitive agreement becomes more straightforward and less expensive. Third, an agreed LOI enhances deal stability and commitment, giving both parties the confidence to proceed and commit the necessary time and resources. Fourth, a LOI is useful when third-party or regulatory approvals are required as it provides a clear statement of the deal’s key terms for boards, lenders, shareholders, and regulators. The case against the LOI, however, is equally important to consider. Letters of Intent are an extra document to negotiate and prepare, and the cost can be disproportionate to the benefit, particularly in straightforward transactions. (I have not seen too many deals under $5M where an LOI made sense, but there are always exceptions). Negotiation of the LOI can stall over points of unnecessary detail and impair deal momentum, potentially causing delays that weaken a party’s desire to complete the deal or extend past an exclusivity period. There is also the risk of unintentionally creating a legally binding commitment — courts may find a provision binding even if one party did not intend it to be so. And although the terms may be non-binding, they carry expectations, and a party that later seeks to change terms agreed to in the LOI will often find it is not good business or good for their reputation, absent some adverse change causing them to renegotiate (which a good LOI would have covered in any case and allowed for). The answer to the “to be or not to be” LOI question, should be a strategic choice, based on cost and complexity considerations. If you are a Canadian business owner contemplating a sale, or looking to expand via M&A feel free to email me at redacted (This post is for informational purposes only and does not constitute legal advice. Readers should seek legal counsel before acting on any of the information contained herein).