Your opinion: How long until an LOI expires

searcher profile

March 19, 2020

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

Looking for what people are recommending in the field for time until an LOI expires. There's a few theories out there. Also, if you find a very large company or complex ownership structure, any thoughts on how that might affect the LOI deadline?

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commentor profile
Reply by an intermediary
from Indiana University at Bloomington in Carmel, IN, USA
In agreement with Doug 100%, but that being said, usually some time limitations are generally needed (along with extensions based upon timely delivery of requested info) to get the seller some assurances as there is a big cost to them (the seller but especially the broker if it is listed) if they take if off the market. The biggest concern for a seller, especially working with a SearchFunder, is the availability of the capital to do the deal, So once an LOI is signed, there is usually a period that requires a loan commitment from the bank on the deal to be in hand (say###-###-#### days), then upon completion of Due Diligence (within###-###-#### days)redacted
commentor profile
Reply by an intermediary
from Strayer University in Revelstoke, BC, Canada
There are two timing elements in an LOI that are important.

1) How long the period is for the other party to accet, or counter offer. That is, how long is the offer open. My suggestion here is the initial LOI should have at minumum a week, and as counteroffers go back and forth, the timelines should be shortened. The longer you leave the acceptance period open, the longer the deal drags on.


2) Exclusivity clause timing. The exclusivity will determine how fast the buyers need to work before the seller can start to search for other interested parties. If there is no exclusivity clause in an LOI, the timing is not totally relevant, as the seller can continue to court other buyers. If there is exclusivity (which is standard), set it so that it pushes the buyer to drive diligence. As Ryan states 60 days is good, with a clause to extend another 30. If you don't totally trust the buyer, make it shorter so you don't hold your deal up.
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