Whenever a corporate business goes under or if the owner wishes to sell more than 50% of his business, then there is a chance that another business will decide to purchase it. This potential buyer can capitalize on the purchase by making use of the purchased business’ strengths while fixing all of its weaknesses.
But, in order to purchase another business, the owner has to be informed that there is someone who is willing to buy it first. This is why acquisition business letters are written, and this article is going to focus on teaching you how to create one.
The length of this letter will depend entirely on the desires and the negotiations between both parties. Here are the types of items that can be included in a letter of intent:
You have to discuss the means by which you will be purchasing a share of the business. Are you going to pay everything in cash? If you are going to pay with cash, then are you going to pay everything right away or in stock, or are you going to hand a promissory note?
Will the deal be debt-free? A working capital calculation and adjustment mechanism? Treatment of severance costs and transaction fees and expenses? You need to consider all of these when determining the adjustments that need to be made to the business purchase price.
Are you going to purchase all of the business’ assets? Are you going to purchase all of the business’ outstanding shares? Or are you going to be merging your business with the one that you are about to purchase? You should really make this clear when you write the letter of intent. You may also see Proposal Letter Templates
The formal scheduled dates when the negotiations can take place and possibly when the purchase will commence should be written on the letter as well.
Consider matters regarding escrow to secure the seller’s indemnification obligations, how long the escrow is going to last, and for what items the escrow will be the buyer’s sole remedy for claims. You may also like Appointment Letter Templates
How long is the exclusivity going to last until another potential buyer may be considered? When can the seller of the business terminate the exclusivity? This should be discussed in the letter so that both parties will know when the business may be purchased by another party should you decide not to push through with the deal.
This would be all of the actions which the buyer is prohibited from doing prior to the closing of the purchase. These are all dictated by the seller. You may also see Termination Letter Examples
This would be the concern of the parties concerning the transaction (and ideally a non-disclosure agreement will already be in place by the parties).
This should talk about how the professional employees of the seller should be treated once the buyer has obtained all the shares. This has to be pointed out in clear writing so that the buyer will show the seller that the employees will be treated fairly.
This should be in the standard letter and it should state that the final conditions will be discussed by both parties to ensure that the transaction will benefit all of those who are involved.
Discuss in the letter whether or not these two documents are going to be required before the transaction can take place. This document will add a measure of security to both parties. You may also like offer letter templates
Discuss the details of how and when the acquisition can be terminated should either party wish to change their minds.
A part of this business letter should discuss how disputes are going to be handled by both parties and in what jurisdiction. This will ensure that any problems that either party will come across will be dealt with in an orderly and professional manner.
If you would like to learn more about letters of acquisition and other business matters, check out our other articles.