Type: Law Bulletins
Date: 02/09/2021

You've Signed an LOI but Have Run Into Roadblocks – Now What Do You Do?

Our entrepreneur business owners often come to us after they’ve signed a Letter of Intent (LOI) to sell their business. They’ve run into roadblocks during the post-LOI negotiation or have simply decided that the buyer or the deal doesn’t fit their expectations. Sometimes they feel like they were pushed into signing the LOI and are now having second thoughts.

Here are five things to consider if you find yourself in that situation for whatever reason:

  1. Don’t panic. Even though you’ve signed the LOI, you most likely are not obligated to go forward with an actual closing. The LOI is simply a document that lays out the parties’ intentions for the deal. In the vast majority of cases, you are not obligated to actually sell until you sign the definitive agreement (i.e., asset or stock purchase agreement, merger agreement, etc.).
  2. Assess the situation. Really think hard about your relationship with the buyer and your goals for the deal. Ask yourself things like (a) why you chose this particular buyer, (b) why you liked their proposed deal terms, and (c) most importantly, does both the buyer and their proposed deal terms achieve your objectives. Sellers often enter into LOI’s without having fully thought through all of the above – sometimes buyers do too. The LOI is just one step toward the closing. It’s not wrong to raise issues after you’ve signed it. The deal only makes sense if it works for both sides.
  3. Communicate. Once you’ve assessed the situation, communicate your issues to the buyer. They should want to make sure that you’re comfortable, especially if you will run the business post-closing. If they don’t care about your concerns, their reaction will at least be confirmation that they’re likely not the right fit. Also, consider strategically how best to communicate your issues. It’s sometimes best to do that business person to business person. Other times, it’s best to have your lawyers or other representatives act as your agent.
  4. Explore options. If the buyer isn’t willing to address your concerns adequately, consider your options. Almost every LOI includes an exclusivity restriction that prevents a seller from talking with other buyers. Be very careful not to violate these provisions and consult with your attorneys. However, most exclusivity provisions automatically sunset (e.g., 30 to 90 days post-LOI execution). You simply might be able to wait out the clock. We usually advise sellers to notify buyers as soon as possible to avoid potential damages – e.g., so that buyers can stop spending money on their outside advisors (attorneys/accountants). Buyers often respond by terminating the LOI and in some cases the exclusivity provisions.
  5. Whatever you do, don’t … Whatever you do, don’t sell your business on terms that don’t work for you just because you signed the LOI. Yes – the negotiating leverage generally shifts to the buyer once the LOI is signed, but a seller still has leverage. Selling your business can be a once in a lifetime event. Making sure you get it right is the most important objective.

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