Do you use a lawyer to draft a new LOI each time? Or do you use a template?

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June 02, 2020

by a searcher from University of Guelph in Toronto, ON, Canada

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Reply by an investor
from Columbia University in Dallas, TX, USA
If you have a good template, you can defer the legal spend to late in the process, and only the opportunity/opportunities where you're really serious. Spending drips and drabs on lawyers for term sheets that were never going to result in investments is avoidable waste.. I definitely wouldn't start from scratch every time, and I definitely wouldn't go to a lawyer for a new LOI every time -- but you must have a good template. If you don't, and templates may vary by the structure of acquisition, the industry, and other factors -- then it's worth sourcing one. Here, your investors may be helpful. If you have investors that have backed search funds before, they may have a preferred LOI form or library you can draw on. They will have seen LOI mistakes that can backfire. Don't be afraid to ask your backers. As you engage with sellers, be careful to communicate -- and document -- that in the LOI and with each turn of the LOI and every meeting that final documents will require legal review, that you haven't involved your lawyer. yet, and that this preliminary LOI is not comprehensive, is subject to DD, etc. conditions not yet met.. Build in references to "customary seller representations and warranties" and "customary restrictions on. . . . " and ". . . to be mutually agreed" type language to leave room for your lawyer later. And make sure your LOI is very clear that, even if it's signed, it's non-binding -- or perhaps non-binding except for confidentiality or one or two things. If you're not using a lawyer as you go, you don't want someone to try to enforce an LOI arguing they thought they had a final deal.
commentor profile
Reply by a searcher
from University of Toronto in Toronto, ON, Canada
I think a template is fine if you are comfortable with it and it has been reviewed by your lawyer. If there is a unique element to the deal that hasn't been contemplated in the your template and it is key to the deal it may make sense for your lawyer to review the new language.
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