THE LETTER OF INTENT

A Useful Tool to Help Advance Productive Negotiations

THE FUNDAMENTAL PURPOSE OF THE LETTER OF INTENT

At the beginning of any complex negotiations, for example mergers or acquisitions, it is common for parties to sign a letter of intent (LOI). Typically, a letter of intent is used as a mechanism to protect parties to a transactional negotiation, during the negotiation and in the event that the negotiation fails.( I have also used them in  dispute related negotiations. See my c olumn " Avoiding Litigation in a Litigious Culture "). They   may contain non-solicitation provisions restricting the potential buyers ability to hire employees from the seller's business should the parties be unable to reach agreement. It will include other common clauses such as due diligence warranties and indemnification language to protect buyer from prior liabilities of seller. It may also allow for "shut-down" clauses (precluding any other competitive negotiations while these negotiations are taking place), confidentiality agreements and non-disclosure agreements. It is also common to include a survival clause that guarantees that certain parts of the letter of intent, for example non-disclosure agreements, will survive even should negotiations terminate and other parts should no longer be relevant.

EXPANDING THE INTENT

A letter of intent, when designed and negotiated effectively can be so much more than this. It is not uncommon for complex negotiations to drag on for months or even years.  The process may become confused and derailed.  Parties may become acrimonious and contentious. Crucial information sharing may be stilted. Other parties may be obstructing and "spoiling" the negotiations.  Cognitive or emotional barriers may be blocking progress. 

To  mitigate these potential pitfalls and destroyers of productive negotiations, it makes sense to negotiate the negotiation process itself - to negotiate ground rules, expected milestones, benchmarks and deadlines, communication systems, information sharing,  dispute resolution protocols and ways of getting beyond impasse. 

These items once agreed upon by the parties, should also be included in the letter of intent and signed. This letter of intent then becomes more than just a protection mechanism but sets the tone, tenor and spirit for the future negotiations as well as conveys a seriousness of intention of the parties. The stage for a successful, optimal and efficient process is then set,  and a profitable, sustainable and durable outcome is more likely. 

NEGOTIATING THE NEGOTIATION

When working to expand the intent to include the negotiation process, ask yourself what concerns might you have with regards to the negotiation process itself; about the working relationship during the negotiations and beyond; and what obstacles could you foresee. Think about measures that could help build trust and a strong rapport; and how you might balance fairness with value and optimization. Work to create a process road-map for the negotiation. Engage your counterpart(s) in these discussions and work jointly to develop ideas and language that would address these concerns and issues.

Having dialogue about the negotiation process itself and including appropriate measures in the letter of intent will go a long way in avoiding the common pitfalls of complex negotiations and pave the way for a smooth and mutually satisfying negotiation, while increasing your reputation as a highly effective and professional negotiator.