

Ask HN: What would you add in a Letter of Intent? - idont

Hi,<p>My company is being acquired by an other one. They are going to send me a (draft) letter of intent.
What should I add to protect myself&#x2F;my company? (Things like &quot;No information gathered during the due diligence can be communicate or used.&quot;, etc).
Do you have advices?<p>Thanks.
======
davismwfl
I'd say you need an attorney now to help you, mistakes made at this stage can
be costly later. I don't think it should cost you all that much to have an
attorney help you review or adjust it if needed.

And the terms also depend on the size of the deal. Not asking you to tell me,
just that a deal worth $100k is different than a deal worth $5M. Also, it
would depend on if their intent is to purchase your company through an asset
sale or a stock sale as to some of the terms you should pursue.

Consult with an attorney to protect you and your company. And consult with an
accountant to make sure you don't get smacked hard on taxes based on the type
of deal they want to setup.

~~~
idont
I tried to find a Merge and acquisition attorney/lawyer. None of them (the
good ones) understand my business... Internet is too complicated for these
guys... :( So to my experience, they are only of bad advice.

We are speaking about $10M...

~~~
davismwfl
You have to find an attorney that you can work with. A deal at that size is
large enough that minor mistakes could be really costly to you. I get that
many attorney's have no clue about technology or the internet. I struggle with
that myself. What I wind up doing is making sure they are a solid attorney,
and I'll deal with specifics on the business -- basically explaining to them
things I feel need to be in the agreement and let them figure out how to make
it stick legally. I have directly been involved in a couple of asset purchases
of my own companies/products. Not to the size you are talking, but I found I
had to study terms a lot and push the attorney's pretty good, don't consider
them the end all of knowledge, they are a tool to use. And I don't mean that
disparagingly, just that they can never know every business or detail, it is
our job to educate them and show them areas we have concerns and a good
firm/attorney will figure out how to protect you.

You might be able to get some older sales/purchase documents online to use as
examples of things to watch out for. I can share privately some of the
"standard" clauses we had placed in our documents, but I really think you need
a good attorney and CPA. As every deal is unique.

One other point, you can't stop them from using knowledge they gain from the
due diligence part of the process. Yes you can put clauses in the letter of
intent, agreement etc, but that just means you can sue them if you catch them
later. Of course, they will claim they gained that knowledge independently and
its hard to prove. This is why you limit the duration of due diligence. Keep
it as short as possible so they have to act or leave, but not so short that
you are unreasonable. Also, why I never had one, to me this is where a breakup
fee may be worthwhile, make it painful for them not to complete the
transaction, so that if they are just tire kicking to "learn" it still has
costs.

------
grabeh
By definition if you haven't received the letter it is impossible to know what
to add. Having said that, and stating the obvious, a letter of intent is
generally intended to grant an exclusivity period to the potential acquirer in
which to conduct due diligence and determine whether they really wish to
purchase the company.

Consequently as you allude to confidentiality is vital. At the same time, you
should have a limited exclusivity period following the expiry of which you are
free to go to any other potential acquirers, and also the acquirer will have
to return/destroy all confidential information.

Of course in reality, the benefit of the information could already have been
derived from the acquirer. In the first place therefore only information which
is absolutely necessary should be disclosed.

In any event, in a usual acquisition you would have lawyers deal with the
paperwork for the sale and purchase, so I see no reason not to get those
lawyers involved at this stage. This does to an extent depend on the size of
the deal, and whether sales or assets are involved of course.

~~~
idont
This thing is that they have added tons of other conditions not related to the
Due Diligence and the acquiring process itself.

They already set some constraints for the afterwards.

I would like them not to use the knowledge they will acquire during the
assessment of my assets. :)

