Do you need a lawyer for your LOI ?

June 13, 2024

by a searcher from University at Albany, State University of New York - School of Business in Miami, FL, USA

Can we use a template LOI that you can find in a lot of training courses e.g. Codie Sanchez Biz Buying course?

If not, why cant you use a lawyer one time to draft an LOI for you and then reuse it by adjusting the price.

What do you guys pay for your LOI from a lawyer?

1 Like

10 Replies

93 Views

Replies

Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

You do not need a lawyer to draft an LOI. However, if you are inexperienced in business acquisitions, it is smart to either consult with a lawyer or discuss with others experienced in business acquisitions before presenting an LOI.

I have seen many circumstances where the LOI fails to contemplate some major issues or items related to the transaction. The buyer and seller have initially agreed to the LOI, but during the process the buyer realizes they were missing important protections and then try to negotiate them in with the Purchase Agreement. Because they are seen by the seller as an add-on to the deal, I have seen many deals fall apart at this stage because of this, or buyers moving forward with a deal that is less lucrative for them to still get it done because the seller will not allow those changes. If the deal does fall apart at this stage, you have then wasted potentially weeks of your time and possibly some money on due diligence and legal. So even if you have to pay an attorney a little bit to review something up front or you spend a bit more time asking for help up front, it can save you in the long run and ensure you have a good deal. If you find a good attorney that can help you draft a solid LOI and then you just consult with the attorney on each deal, it should not break the bank and may save you in the long-run.

One last minor point. If you end up having to make major changes from the LOI to APA due to missing items up front and the seller still moves forward, it could leave a bad taste with the seller and that could make it more difficult to work with the seller in the future with the transition. That is why full disclosure up front of what you are looking for is so important with the LOI to avoid major deviations, of course accept for those required due to discovery in due diligence. If you have any additional questions or would like any assistance at any time you can reach me here or directly at redacted

Reply by an investor
from University of Pennsylvania in Charlotte, NC, USA

One view is it depends on the size and complexity of the transaction, along with your experience (actual, not from a training course, blog posts on forums, etc.) with acquisitions. However, ^redacted‌ makes good points above that argue strongly in favor of using M&A-experienced counsel. I'll add that it's a mistaken notion that you don't need a lawyer because of the document's non-binding nature. This is sometimes heard from those who lack significant real transaction experience. It misses the critical point that the LOI serves as documentation of a good-faith agreement between the parties on the terms of the deal and serves as the basis for the purchase agreement. As such you need to get it right and cover important terms: at a basic level, what are you buying - stock or assets? What is excluded/included? What is the basis for valuation - debt free, cash free? What does the consideration consist of? Will there be a post closing purchase price adjustment? Escrow? Customary rep & warranties and indemnification? Etc., etc. Beyond the basics, there may be critical situation-specific terms that underpin the deal and need to be in the LOI. An M&A lawyer can get this right A template won't. I haven't seen any AI tools (link above doesn't seem to lead to any tool) that are better than a template, though if one shows up that's created by a team with hundreds of closed transactions under their belt then it could be worth a try for creating a first draft.

+8 more replies.

Join the discussion