M&A – Getting a Deal (Letter of Intent and Deal Structure)

Letter of Intent (LoI):

As an initial aspect of an M&A deal, the parties must negotiate an engage by executing a LoI.  This is normally a non-binding agreement that a potential buyer sends to the potential sellers aiming to evidence a formal interest in a specific target company further aiming to make a formal offer, negotiate and close a potential deal. This usually includes the due diligence and exclusivity period, proposed deal structure, and initial purchase price, which is normally subject to concluding the due diligence review (i.e., legal, financial, and otherwise).  

Deal Structure:

In an M&A deal, there are normally three options for structuring the deal:

• Merger:  Mergers tend to be adopted as an strategic step for companies aiming to increase value and/or expand market share. 

• Stock or equity deal: The potential buyers directly acquire from the selling shareholders the shares representing the capital stock of a target company, so the potential buyer ends up being the owner of the target company.

• Asset deal: The potential buyers acquire from a company operating assets of a particular business instead of the shares representing the capital stock of such company.

Each party of an M&A deal has its own interests and legal considerations in each option. Irrespectively, it becomes relevant to cover all legal issues during the negotiation process of a deal structure and strategy, including thoroughly analyzing the tax drivers of the transaction itself. All deal structures have important legal effects, including those related to tax, conveyance of liabilities, and existing contingencies.