The LOI, at least the ones I've read, prevents you from discussing sale opportunities with anyone else. It's called a "no shop" clause.

Before the LOI? Go crazy.

I’d rather not do the deal than have a no shop clause.

A no shop clause destroys so much deal leverage. I can see why the buyer would want it.

In fact a no shop clause is indistinguishable from an exclusivity agreement.

If the buyer absolutely required it I’d put a hefty non refundable price on it, probably 50% of deal value. Such a commitment has to work both ways.

As others say, once you reach the point of a letter of intent-- there's no way a buyer wants you carrying their LOI around to everyone in the world trying to get a better offer while the buyer is committing resources trying to get the deal done.

It's reasonable to expect a ("reverse") break-up fee, but it is not likely to be half the deal value.

Maybe a no shop clause should have a tight time to live.... “ok we commit but only if you put the money in our account within seven days, after that shopping is ok”

Deals take a lot longer than 7 days to close-- especially real acquisitions, but even asset purchases usually take months.

There's a lot of misconceptions here around how corporate acquisitions work. Here's typically how things work in practice when companies are sold:

- Seller attempts to garner interest, sometimes facilitated by an investment bank.

- Buyers indicate interest informally, eventually culminating in a Letter of Intent (LOI) from each buyer indicating a price and other important factors related to a deal.

- A cricitical component of the LOI is an exclusivity period - a duration of time where the buyer is able to conduct due diligence in exclusivity. It's clearly in the best interest of the seller to minimize the duration of the exclusivity period.

- Discoveries in the exclusivity period are typically grounds for renegotiation. Vulture buyers typically crush sellers and completely renegotiate a deal in this period banking on the fact that the seller has no alternatives post exclusivity. Good buyers know their reputation is at stake if they renegotiate an LOI and will only do so if material things show up in diligence (reasonably common).

- The LOI is not an obligation to purchase. Mostly the buyer is putting their reputation on the line.

- Earnest money is extremely rare in corporate acquisitions because the buyer universe is sufficiently small such that reputation is a sufficient motivator for good behavior. That said, anything is negotiable and you can go against tradition at any point if you have enough leverage (interested buyers).

In the OPs case, the buyer was not disclosed. Did they lose any reputation? How to roll the ball to let people know that someone screwed you up without damaging own reputation?

I’m sure they did. All of Baremetrics lawyers and investors know who it is. Investor circles are small - word gets around. Same with lawyers. The number of times I’ve heard “yeah, we know those guys, I wouldn’t recommend working with them” in board meetings is high.

Brokers are pretty well connected and ours made sure to spread their name around. They'll have a hard time buying a company through typical routes for a while.

I'm also perfectly happy to let anyone know in private who it is. :) DM me on Twitter (@Shpigford) or email: josh@baremetrics.com

The way it's worked for me is more like:

1. Buyer approaches seller for strategic reasons.

2. Seller tries frantically to probe interest elsewhere while early acquisition discussions continue.

3. Buyer writes a LOI, seller demands reverse break-up fee and changes, tries to stall to continue discussions in #2 without scaring away buyer.

4. Eventually some LOI gets signed.

What does "changes" mean in this context and what constitutes a reasonable reverse break-up fee?

Also in #2, does "probe interest" mean getting them to sign a LOI?

> What does "changes" mean in this context and what constitutes a reasonable reverse break-up fee?

It's unlikely whatever the buyer throws over the wall first is exactly what you want to sign.

> Also in #2, does "probe interest" mean getting them to sign a LOI?

If company A approaches you, wanting to acquire you, you want to really quickly figure out if company B, company C, and company D are interested before you commit to a period of exclusivity with A.

Thanks!

> If company A approaches you, wanting to acquire you, you want to really quickly figure out if company B, company C, and company D are interested before you commit to a period of exclusivity with A.

Let's say that company A, B and C are interested (with A being interested the most), what would be the next step? Can you get an offer without a LOI?

Forgive my ignorance but if a buyer indicates interest, is it ok for the seller to ask for a LOI?

Or if the buyer doesn't mention it explicitly, does it mean that they're not serious enough?

Who should mention the first amount of money first, buyer or seller?

Good luck finding a counterparty that won't ask for a no shop clause. As a VC all our term sheets have legally binding no shop and confidentiality clauses. That's industry standard.

No shop clauses are normal -- no serious buyer would move forward with diligence without it

And that's certainly your prerogative. Your preferences aside, a "no shop" clause is the norm.

This is wishful thinking at best.

For better or worse, exclusivity in an LOI is the norm. Obviously, you don't have to accept the LOI, but any LOI that is missing exclusivity is usually a sign of inexperience and honestly is cause for concern.