First and foremost: letters of intent critical in M&A transactions.

• Author: Taylor, Thomas R.
• Position: Mergers & Acquisitions

Thomas R. Taylor is a corporate and M&A lawyer and shareholder in the Salt Lake City office of Durham Jones & Pinegar, PC.

Negotiating a merger or acquisition can be a delicate process. Some believe that involving experts, such as attorneys, in the letters of intent (L01) negotiation process can damage the relationship between the seller and the buyer and inhibit the development of trust. I couldn't disagree more. Such advice is ill-advised and can result in adverse financial and legal consequences--particularly for a seller--in an M&A transaction.

I agree that, at the time the LOI is being negotiated, the parties are still early in the process and in the "dating phase" of the relationship. Both parties need to appear eager and flexible and do what they can to establish trust and not appear overly concerned with details, tax and legal issues, or unnecessary legalese.

_ However, the reality is that the LOI is a critically important component of any M&A transaction. In my experience, neither party to a proposed M&A transaction--and particularly the seller--should ever enter into an LOI without input from competent and experienced legal, tax, accounting and financial advisors, and doing so is often a very costly mistake.

A NON-BINDING AGREEMENT?

The main purpose of an L0l in an M&A transaction is to force the parties to identify and consider early in the process the critical and fundamental deal terms and conditions, before either party expends a substantial amount of time, money, effort or resources pursuing a transaction when no basic agreement regarding the fundamental terms and conditions has been reached.

Clients and prospective clients routinely say to me, "the LOT isn't important because it's a non-binding agreement." However, that notion is fatally flawed and can be a very dangerous trap to fall into for three reasons.

First, while it's true that LOIs for M&A transactions are almost always non-binding agreements, a few very important, but often seemingly innocuous, provisions are routinely made binding. Included among the provisions that are almost always binding are exclusivity/ no shop, confidentiality, payment of expenses, termination, and governing law and jurisdiction. Not understanding and appreciating the operational, financial and legal consequences of each binding provision can result in substantial liability, especially for the seller.

Second, critically important and financially significant provisions can--and almost always...