Reading a letter of intent: follow the money and the conditions

Look beyond the headline price to understand structure, timing, exclusivity and deferred amounts.

Educational owner resource. Read the cited sources and obtain advice for your circumstances.

Use the LOI to define the proposed deal

A letter of intent brings major commercial terms into one document before the parties spend more time on investigation and definitive agreements. BDC’s diligence guidance places the LOI and confidentiality agreement in that early acquisition process. Business Development Bank of Canada The document’s legal effect depends on its wording and circumstances, so have qualified transaction counsel review it before agreeing.

Our annotated LOI is fictional and educational, with no signature area. It does not provide a ready-to-use contract. References to proposed binding terms explain topics that counsel would need to address; calling a provision non-binding does not by itself settle its enforceability.

Translate the headline price into actual payments

Write down what is being purchased: specified business assets, shares, inventory, receivables, property or a combination. Record which liabilities stay behind, which may transfer and which need settlement. A cash-free/debt-free enterprise-value convention requires its own bridge; it is not interchangeable with an inventory-separate asset offer.

Next identify payment timing. Ask what is due at closing, held back for claims, financed by the seller or contingent on performance. In our invented example, a $1,550,000 operating-asset price plus $250,000 assumed inventory produces a $1,800,000 gross price. A $100,000 holdback leaves $1,700,000 available at closing before agreed deductions. None of those numbers establishes after-tax proceeds to the owner.

Make conditions and exclusivity concrete

A financing condition can leave the seller exposed to a failed funding process. A regulatory condition can affect timing. Lease consent, diligence satisfaction and contract assignment can all become practical dependencies. Ask what evidence satisfies each condition, who is responsible, when it must be achieved and what happens if it is not. Avoid a calendar that assumes approvals occur automatically.

Exclusivity restricts the seller’s alternatives for a period while a buyer investigates. Consider whether the proposed period has meaningful diligence and financing milestones, a clear endpoint and an agreed response to delay. A deposit needs rules about custody, refund, application and release. The sample terms are invented for explanation and should not be treated as industry standards.

Do not postpone transition and risk allocation

Specify the seller’s hours, duties, compensation and handover period. Clarify how a holdback or earn-out is measured, who controls the underlying business decisions and how disputes are handled. Restrictive covenants must be tailored to applicable law and the intended role after closing; a broad promise can conflict with an owner’s plans.

Before saying yes, prepare a one-page comparison of structure, closing cash, deferred risk, conditions, timetable and continuing obligations. Ask counsel and your accountant which details need resolution now and which belong in definitive documents. Use the annotated example to prepare questions, then book a confidential discussion. An understandable LOI can reduce avoidable uncertainty, but it cannot replace diligence or professional advice.

Continue reading

Pharmacy financial figures: gross profit, gross margin, NOI and EBITDA

Pharmacy share or asset purchase agreement: what sellers should expect

Selling a pharmacy in Canada: what happens from an accepted offer to closing?

Sources and context

Selling a business
General tax-registration and GST/HST guidance. Conditional election eligibility; no automatic exemption or individualized tax result.

How to conduct due diligence when buying a business
Generic acquisition diligence guidance; not pharmacy-specific obligations or legal wording.

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