Letters of Intent are commonly used by Counsel representing Buyers of a technology business to lock-in key terms governing the transaction while also providing an exit strategy at the Buyer's option. Whether the Letter of Intent is a good idea depends on the terms cited in the Letter.

The terms typically cited in a Letter of Intent include the purchase
price, a schedule for due diligence and terms that settle potentially contentious
issues in favor of the Buyer. Examples include employment terms for the principals of the business being purchased, terms governing the assignment of leases, receivables or customer contracts, or the scope of rights tied to a particular technology being acquired.


Seller agreement with these provisions before completing due diligence can be compromising to the Seller's interest. The effect is to dilute the Seller's bargaining leverage on these issues while the Buyer retains the option on the purchase. Buyers of a technology business will want to exploit this technique for advantage.


Sellers have various negotiation techniques they can use to minimize these risks. One alternative is to decline the Letter of Intent using the argument that the parties should move directly to negotiating the Purchase Agreement. A second alternative is to aggressively promote a version of the Letter of Intent that advances the interests of the Seller. Finally, review and negotiation of the Buyer's Letter of Intent is a third option.
.