Part II: Negotiating the Letter of Intent

This is the second article in our series on “Closing a Private Equity Transaction.” As discussed in “Part I,” advance preparation is critical to getting a deal done. Once preparation for a potential transaction is complete, and an interested buyer or investor is identified, the parties will proceed with negotiating a letter of intent (LOI).

With a few exceptions (which are mentioned below), the LOI is a nonbinding document, but should include those terms essential for both parties to close the transaction. This is the moment when the parties will be in the best position to ensure that the time and expense that will be required for negotiating a definitive purchase agreement will be justified.  Such terms can include:
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Part I: Preparing for a Transaction
First in the series.

To increase the likelihood of ultimately closing a transaction with a private equity investor or buyer, the key is preparation.  Preparation is divided up into several steps.

First, before seeking a potential investor or buyer, the owners of the business should go through a semi-formal process to confirm the owners and key members of the business have shared, or at least compatible, motivations and priorities in a pursuing a potential transaction (e.g., capital for improving or growing the business, building a brand, creating value for a future exit, or cashing out). This will allow the business to focus on those investors/buyers with aligned expectations, and ultimately gain the required approval to close a transaction from the owners and key members of the business.
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ContractSignature_iStock_000013778118MediumAs with any transaction, a healthcare deal typically starts with a Letter of Intent (“LOI”) or Term Sheet to outline the base agreements on the business deal. The LOI or Term Sheet should include not only the purchase price (or range), purchase price adjustments, payment terms, closing conditions, confidentiality, exclusivity, and other common items, but also the transaction structure – for example, asset sale, stock/membership interest sale, merger, joint venture, affiliation, etc.
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