Letter of Intent

 
 

Draft your Letter of intent

When the buyer, is ready to make the Seller an offer, the proper way to do this is in the writing of a Letter of Intent, (Letter of Intent), to buy. The elements of the Letter of Intent include:

  • Exactly what you are buying, (the RIA, the LLC, just the assets and clients, insurance, furniture, etc.)

  • The price you propose to pay, including the down payment

  • The structure; how you plan to buy the firm or book. (An earn-out, an installment sale, a cash payment, etc.)

  • Plans for the owner, (work for a specific period of time, until the client assets move, or some other period). This is the Management Agreement.

  • Any other agreements, (non-compete, non-solicitation)

  • Timing for the Close

  • If you plan to keep any of the employees.

  • A time limit on the offer.

Each of the bullets above represents a provision in the Letter of Intent. We want to be as clear as possible. Remember, there will be a Definitive Agreement, which will be signed at the Closing. This Agreement is very detailed and should be written by an attorney.

We tend to call the Letter of Intent a “wish list.” You write what you want to do and give the seller a chance to come back with his or her own “wish list.” Better still, we have spent the necessary time to determine the seller’s desires. Then when we sit down to present the Letter of Intent, (never mail or email an Letter of Intent!!), we can truthfully say that we have addressed all of the seller’s desires. Notice, I did not say the seller gets everything that he or she wants; I simply said that we indicate that we have addressed them. We try to make everyone happy so that the Transition will go well, but we have to stick to what works for you. This is why we suggest more than one model.

Moisson Partner’s Letter of Intent is slightly different from most other Letter of Intents. The Letter of Intent does not typically bind anyone to buy or sell; it simply expresses their intent to engage in “good faith bargaining.” MPI’s does this, but it is as close to a full Definitive Agreement as we can come for one simple reason. We do not want the attorneys negotiating the deal. Why? Because when two attorneys, or as they refer to themselves, “opposing counsel,” begin negotiating, it is inevitable that one will anger the other in the name of “winning.” Closely held advisory practices are negotiated by the principals, or should be, as opposed to attorneys who have no emotional stake in the transition. We rarely get a Letter of Intent signed by both parties and then do not Close, because we have taken great pains, (as our clients have), to find common ground where there are no losers. We know that every negotiating book you have ever read says that there is no such thing as a win-win, but that is in fact our objective. As has been said, nothing is perfect, but if everyone gets what they want, the transition is good for buyer, seller and most of all clients.

Attorneys play a role in the Process. They must draft the Definitive Sale Agreement and they must advise their clients if something is not in their best interest or causes undo risk on the client’s part. However, as has been said, we do not want the attorney to negotiate the deal. The Letter of Intent sets the framework and the attorney uses it as a guide. By the way, so do the lending firms.

If you would like to learn more about how to develop your Letter of Intent, or would like to learn more about how Moisson Partners, Inc. can help, select the Contact Us link below.