Non-binding does not mean unnecessary!
Cascade Managing Director Rajesh Kothari and Kevin DiDio – Partner at Barnes & Thornburg LLP break down what the LOI does and the many protections it offers all interested parties before, during and after a transaction. Much of a LOI is non-binding but that doesn’t diminish its necessity or power.
Transcript
00:00:00:11 – 00:00:16:25
Announcer
Welcome to Cascade Conversations, joining the team at Cascade Partners and their network of trusted advisers as they work to demystify details, terminology and strategies in the world of acquisitions, divestitures and financings.
00:00:16:27 – 00:00:34:23
Rajesh Kothari – Founder, Managing Director – Cascade Partners
Thanks for joining us for another cascade conversation. I’m Raj Kothari, managing director of Cascade Partners. And joining me today is my friend Kevin DiDio, a partner with Barnes and Thornburg and Kevin, it’s great to have you here. Really appreciate you spending the time with us to chat a little bit today about letters of intent.
00:00:34:25 – 00:00:37:26
Kevin DiDio – Partner – Barnes & Thornburg LLP
Appreciate the opportunity, Raj. Great to be here in your new office. Beautiful.
00:00:37:29 – 00:00:50:18
Rajesh Kothari – Founder, Managing Director – Cascade Partners
Thank you. So one of the key questions folks always want to understand is, well, what exactly is a letter that we talk about indications of interest and how do you describe letters of intent or lies to your clients?
00:00:50:21 – 00:01:23:23
Kevin DiDio – Partner – Barnes & Thornburg LLP
Well, it is an education process because people use the term letter of intent or alloy in a way that is not a defined term. And it’s it is a bit fluid in the sense that there are different kinds of letters of intent and I would say, generally speaking, we they come in maybe two or three different flavors. The primary differentiating factor among them oftentimes is is the binding nature of the other.
00:01:23:23 – 00:01:50:13
Kevin DiDio – Partner – Barnes & Thornburg LLP
Otherwise, what’s binding, what’s not binding and oftentimes we hear at the outset, don’t spend too much lawyer time on you or why it’s almost binding. Let’s just get on with the deal. We want to make sure closing it sooner rather than later. And that’s all understandable. And we are obviously receptive to those comments. But it’s it’s our job as well as with the other advisors on the team to make sure that the client understands what they’re saying and what the implications are.
00:01:50:13 – 00:02:01:08
Kevin DiDio – Partner – Barnes & Thornburg LLP
Not only of the deal does go forward, but the deal doesn’t go forward. So we we do spend a lot of time in the education process about about what it is the yellow eye does and doesn’t do.
00:02:01:11 – 00:02:23:01
Rajesh Kothari – Founder, Managing Director – Cascade Partners
Yeah, it becomes really important, right? We often talk about that. You know, some people are like, oh, well, we’ll just skip over that line. And that creates its own set of problems because people don’t know what the deal is. So what are you working for is what are you in negotiating all live and in process doesn’t necessarily create the best the best outcomes.
00:02:23:04 – 00:03:06:11
Kevin DiDio – Partner – Barnes & Thornburg LLP
Yeah, indeed. And we have found it times. There are times when when maybe skipping the other way does make sense, but it does make the process of getting through into the definitive agreements more challenging. Um, I think one of the things to consider when, when it’s to rated yellow eye is whether or not the 2016 case that a lot of got a lot of people’s attention out of Delaware that the parties need to be very deliberate in understanding whether or not they are entering into a non-binding agreement with some terms that are binding like exclusivity.
00:03:06:11 – 00:03:45:24
Kevin DiDio – Partner – Barnes & Thornburg LLP
So we’ll talk more about that confidentiality, things that all the parties can agree upon. But the big question is also come out as to are the parties also agreeing a good faith obligation to continue the negotiations and or is it you or is there no such obligation to negotiate in good faith? And this Delaware case kind of draws attention because it resulted in a couple hundred million dollar judgment against a party that no longer wanted to proceed on the yellow side because it had a different business situation when it then when it signed the LOI and it got them sideways.
00:03:45:24 – 00:03:51:27
Kevin DiDio – Partner – Barnes & Thornburg LLP
And so whether or not the parties have to continue to negotiate in good faith is a big question.
00:03:51:29 – 00:04:18:03
Rajesh Kothari – Founder, Managing Director – Cascade Partners
Well, that’s important. And trying to figure out what peoples intents are in the transaction. And I know, you know, when we work together, you’ve seen from us, right, we like to get to a relatively detailed letter of intent of them. And we often look at it as this is our maximum point of leverage in the negotiation. Typically we have multiple parties when we’re kind of negotiating a lower tab to be able to get the best terms and best elements for our clients.
00:04:18:05 – 00:04:38:10
Rajesh Kothari – Founder, Managing Director – Cascade Partners
But what we often find out is people focus on, Hey, let’s just focus on the top line. And as you know, there’s so many other critical points to a deal that this is our best place to flesh those out, especially for shareholders and offers that aren’t as sophisticated, haven’t done as many transactions. So they don’t know all the different points that are going to come up.
00:04:38:12 – 00:05:06:12
Rajesh Kothari – Founder, Managing Director – Cascade Partners
And so we’ve been huge believers and we’ve worked together really well in negotiating and hammering those through to get to a really good letter of intent that has a lot of the details, not just around the purchase price, but, hey, what’s the employment agreement going to look like or what are the non-competition provisions going to be if that’s critical for for our client or even more importantly, if there’s rollover equities, our clients going to continue to own a piece of what are those provisions?
00:05:06:19 – 00:05:07:16
Kevin DiDio – Partner – Barnes & Thornburg LLP
Yeah, that’s right.
00:05:07:19 – 00:05:09:03
Rajesh Kothari – Founder, Managing Director – Cascade Partners
Well, those limitations.
00:05:09:06 – 00:05:49:27
Kevin DiDio – Partner – Barnes & Thornburg LLP
Yeah. Rollover. And yes, some of the things that the sellers especially like the focus on of course are the purchase price. Well, we also spent time with them of course, educating especially you in the on the finance side to understand what are the purchase price adjustments that look like, What challenges might we have in certain pegged for the working capital adjustment, if there is one and it’s a seasonal business, for instance, you know, you could have a very different set of current assets or current liabilities 36 days after you signed that letter, which would really impact your your purchase price, which is which is why we need you guys to be in there and digging
00:05:49:27 – 00:05:56:25
Kevin DiDio – Partner – Barnes & Thornburg LLP
through those financials and educating the client about that. RWA is another big thing too, that we want to make sure that you never.
00:05:56:28 – 00:05:57:28
Rajesh Kothari – Founder, Managing Director – Cascade Partners
Get a warranty insurance.
00:05:57:28 – 00:06:25:20
Kevin DiDio – Partner – Barnes & Thornburg LLP
Representation. Warranty insurance with your world these days is is is a great tool, especially for sellers who are sensitive to us, as all sellers are, to allocation of risk and what that means after the deal closes to them. And so we we oftentimes spend time upfront, talk about the opportunity to perhaps obtain reps and warranty insurance to to to address that allocation of risk issue.
00:06:25:27 – 00:06:46:24
Rajesh Kothari – Founder, Managing Director – Cascade Partners
While another two really important points and part of it and letter of intent, as you know, working capital is is a huge one that often people are not focused on because they’re worried about the headlines and many times I’m sure, who’s keeping the assets, the receivables and what have you so hammering out, figure out what’s that working capital target?
00:06:46:24 – 00:07:11:23
Rajesh Kothari – Founder, Managing Director – Cascade Partners
How is that going to be determined? What is the overall approach to getting the final letter of intent can generate significant value either towards a seller or away from the seller, but maybe talk a little bit about wrapping warranty insurance and you said it. You know, it’s about risk allocation, but, you know, it’s it’s become a more recent column tool in the last 3 to 5 years, even in lower middle market deals.
00:07:11:23 – 00:07:30:28
Rajesh Kothari – Founder, Managing Director – Cascade Partners
And and today I’m very even down to $15 million transaction value which you know we haven’t really seen that rapid warranty insurance can be can be available. Talk a little bit about why that can help a seller and why it can help a buyer in a transaction that you see and why that’s important. Part of a letter of intent.
00:07:31:00 – 00:07:54:29
Kevin DiDio – Partner – Barnes & Thornburg LLP
Sure. And that’s been our experience, too, is that those policies have reached down to in the lower middle market, which typically they were just priced out of those deals. It was too expensive to make it happen, but that’s not the case anymore. And if if post-closing risk is a very sensitive issue for a particular seller, this is a wonderful tool for the parties to consider.
00:07:54:29 – 00:08:31:24
Kevin DiDio – Partner – Barnes & Thornburg LLP
And then again, I think it’s not considered really seriously at the otherwise stage, it’s likely not going to be like that comes it does pricing comes into into play. It was paying for the policy, those types of things. So but it’s a it’s a it’s a wonderful tool to allow sellers to add 100%, but a large percentage now they have to worry after closing about the the liability that may be there for indemnity claim post-closing to be brought by by the purchasing party.
00:08:31:26 – 00:08:49:08
Kevin DiDio – Partner – Barnes & Thornburg LLP
So in which case if there is a policy, would oftentimes step in except for some things like fraud and other things, of course it might get carved out, but it’s, it’s a wonderful tool to help bridge deal If there are challenges between the parties about risk allocation.
00:08:49:10 – 00:09:08:16
Rajesh Kothari – Founder, Managing Director – Cascade Partners
Yeah, we like that because as you said, right one, it’s going to leave more dollars in the pockets of our clients at closing. So instead of having a 7% or 10% escrow, 6 to 10% these days, all I have to do is typically leave a half a percent of the transaction value and the rest is going to get covered by insurance.
00:09:08:21 – 00:09:30:14
Rajesh Kothari – Founder, Managing Director – Cascade Partners
If there’s an indemnity claim. So we describe it for our clients as, Hey, it puts more money in your pocket at closing, right? It lowers that potential risk profile going forward. But one of the other elements that we’ve found is it’s made it easier to negotiate the purchase agreement because right at the end of the day, we’re not as worried about where the claims are going to come from.
00:09:30:17 – 00:09:54:02
Rajesh Kothari – Founder, Managing Director – Cascade Partners
And as you said in your comment, Right, the key is if you don’t negotiate in the letter of attack, that’s the chance you can get the buyer to pay for it or maybe split cost depending on what you’re able to negotiate. And so that’s a great tool that we use at that point to hammer out, as it is an oral indemnity where there is no you know, there is no sharing of the retention or whether sharing or retention who’s paying for the policy.
00:09:54:02 – 00:10:23:20
Rajesh Kothari – Founder, Managing Director – Cascade Partners
That’s right. And it’s one that we’ve often described to clients that this can be on the sell side. It can be a great, great tool. Even on the buy side, we’ve seen it as a good tool because the buyer is going if there’s indemnity claims, going to a very attractive insurance agency to get paid as opposed to the emotions of a deal going back to a founder or shareholder to make an indemnity claim tends to create a little bit more objectivity in that process.
00:10:23:25 – 00:10:46:27
Kevin DiDio – Partner – Barnes & Thornburg LLP
Yeah, agreed. Yeah. You bring up a great point about easing some of those negotiations around the representations and warranties made in the definitive agreement. People don’t to negotiate as hard and without the understanding that there’s a backdrop there in place to help the rich claim it’s a wonderful tool. And yeah, we, we’ve used it it’s 100 most of the time.
00:10:46:27 – 00:11:05:23
Kevin DiDio – Partner – Barnes & Thornburg LLP
We have to make sure it’s in the yellow if it’s not working because it does impact closing time as well, because the underwriting also takes time expectations around the parties closing date will be affected by the complexity of the underwriting. So it’s become a key component to both letters of intent.
00:11:05:26 – 00:11:22:06
Rajesh Kothari – Founder, Managing Director – Cascade Partners
So so what are some of the other key components that you look at when you’re looking at a letter of intent drafting one or making sure it’s up to speed for your client? There’s the obvious purchase price, but you know, you brought up two great ones, working capital and representation of warranty. Are there others that are that are important to Cabinet?
00:11:22:06 – 00:11:27:11
Rajesh Kothari – Founder, Managing Director – Cascade Partners
So I try to make sure these type of provisions are in the letter of intent to protect our clients.
00:11:27:13 – 00:11:54:26
Kevin DiDio – Partner – Barnes & Thornburg LLP
Sure. Yeah. The the other probably most obvious one is is the structure of the of the transaction in question is it is it does happen. It’s fairly unusual in our experience, but it does happen. It’s where the parties agree to to punt on the structure and to say that they’ll figure it out and to maybe work together in good faith to help reach also a tax favorable result for selling parties.
00:11:54:28 – 00:12:28:14
Kevin DiDio – Partner – Barnes & Thornburg LLP
But you want to try and do your best upfront in the other way to address the structure, whether it’s the asset sale, stock sale, with or without a rollover, maybe it’s a merger or different flavors of those, and maybe it’s maybe it’s includes a Section 338 election too, which could impact things. And so most of those decisions will impact the tax recognition for for for the seller and also sets some tax boundaries for the down the down the road for buyer.
00:12:28:14 – 00:12:54:10
Kevin DiDio – Partner – Barnes & Thornburg LLP
So structure is definitely what we’d like to make sure is in there because everything flows from from it right. Yeah. I would also say we touched a little bit on earlier, but exclusivity becomes a touchy point as these things move from time to time. Who, who, who has more leverage in this particular deal? And sometimes it’s market driven, sometimes it’s deal driven or both.
00:12:54:10 – 00:13:24:10
Kevin DiDio – Partner – Barnes & Thornburg LLP
But if it if the seller has some real particular leverage, they they would like oftentimes not to have to be bound by the exclusivity covenants and be able to have free discussions with others, especially it’s a very competitive transaction. So depending on the particular deal that that exclusivity that could be, But most buyers would certainly want to make sure that you have look over their shoulder for the next 60 or 90 days and know that all the money they’re spending isn’t going to be for naught.
00:13:24:10 – 00:13:29:12
Kevin DiDio – Partner – Barnes & Thornburg LLP
So that can be a real hot button for the parties.
00:13:29:14 – 00:13:48:12
Rajesh Kothari – Founder, Managing Director – Cascade Partners
Yeah, we often look at it as there’s a balance of fairness to it, right? At some point the buyers can spend a lot of money and as long as they live up to the deal, you sign up to, you know, everybody should move forward. But that’s one of the reasons that, you know, you’ve seen in our our approach with exclusive money is we’re fine with exclusivity at the right point in the transaction.
00:13:48:12 – 00:14:18:04
Rajesh Kothari – Founder, Managing Director – Cascade Partners
At some point, you’re almost even in a very competitive process. You’ve got to have it at some point. So one of the provisions that we’ve often used now is, you know, typically are 30, 60, 90, 120 day exclusivity. We’ve now put in a provision that basically says, hey, if you change the material terms of the letter of intent, within seven days, we can terminate the exclusivity and really this has been in response to lots of folks retraining.
00:14:18:06 – 00:14:18:19
Kevin DiDio – Partner – Barnes & Thornburg LLP
You know.
00:14:18:19 – 00:14:41:03
Rajesh Kothari – Founder, Managing Director – Cascade Partners
Retraining deals or changing the terms after their indulgence, after shareholders and founders are getting tired of the process. And what I describe is if there’s a legitimate reason, you know, the numbers were wrong or there was an issue, a skeleton in the closet, every buyer is going to have the same issue. So we’re all incentivized to negotiate. It hammered out.
00:14:41:03 – 00:15:00:27
Rajesh Kothari – Founder, Managing Director – Cascade Partners
That’s why you got that seven day period to say, you know, we said we did $10 million, and it turns out we only did nine and the price came down. Well, that’s a legitimate reason. And every buyer is going to do that. Our challenge and experience has been oftentimes there is no reason, there is no rationale. It says, wow, we feel like we can change it now.
00:15:00:27 – 00:15:21:25
Rajesh Kothari – Founder, Managing Director – Cascade Partners
And this has been one tool that we’ve used to protect our cell site clients from that arbitrary changing of the deal, recognizing that is, you know, right for founders and folks that haven’t been through the transaction process, it’s an exhausting process. Yeah. Emotionally time commitment and oh, let’s just deal with it and.
00:15:21:28 – 00:15:23:26
Kevin DiDio – Partner – Barnes & Thornburg LLP
Get by day to day business.
00:15:23:29 – 00:15:33:06
Rajesh Kothari – Founder, Managing Director – Cascade Partners
Yeah, the buyers will try to take advantage. So it’s one that we’ve used on almost all of ours now to protect, to protect our clients to.
00:15:33:09 – 00:15:54:29
Kevin DiDio – Partner – Barnes & Thornburg LLP
What you said earlier. So is sellers have to be aware of during the process when the law is being negotiated. That is there, the time during which they’re going to have the most leverage. And if they don’t take advantage of it, it can lead to those issues and and get the deal sideways, which no one wants, of course.
00:15:54:29 – 00:15:58:23
Kevin DiDio – Partner – Barnes & Thornburg LLP
So, yeah, that’s that’s a that’s a great tool to have.
00:15:58:26 – 00:16:24:22
Rajesh Kothari – Founder, Managing Director – Cascade Partners
And look at, you know, we look at the letter and and you do how do you use it to set the framework for the negotiations and the and the deal documentation. Right. We’re taking that letter of intent and turning it into, you know, a whole set of purchase, first purchase documents. How do you guys look at that letter of intent as a as a guidepost or a resource for those negotiations?
00:16:24:25 – 00:16:54:19
Kevin DiDio – Partner – Barnes & Thornburg LLP
Well, ideally, if it’s if it’s well crafted, it really does make the process of getting through the initial drafts of the definitive agreements that much more easy. And it’s the clients who are more sophisticated understand that when you put the hard work in upfront, I think with the yellow eye to get through some of those more meaningful terms and conditions about the deal, it makes the rest of those, you know, three or four months to get to closing that much more easy.
00:16:54:19 – 00:17:36:10
Kevin DiDio – Partner – Barnes & Thornburg LLP
So well drafted, although I will make drafting a purchase agreement great. And it also helps to the relationships among all the professionals on the deal teams on both sides. Just easier as management. So the the adversarial relationships tend to go are more tempered when everyone has a good understanding upfront about what the expectations are. Now sometimes what you oftentimes see the other way about customary representations and warranties and customary covenants, those things are a little bit more subjectively defined upfront and you get into some negotiations about those, of course, during the the agreements.
00:17:36:10 – 00:17:43:24
Kevin DiDio – Partner – Barnes & Thornburg LLP
But but generally speaking, a well thought out drafted and signed in a way will make the whole deal flow much easier.
00:17:44:00 – 00:18:00:28
Rajesh Kothari – Founder, Managing Director – Cascade Partners
Even though the provisions are non binding. Right. How does that how do you make sure that you know, again someone that might not be has experienced a hold of their nonbinding? Right. How does that how does that play out of the actual purchase agreement that that was those negotiations?
00:18:01:00 – 00:18:29:20
Kevin DiDio – Partner – Barnes & Thornburg LLP
Yeah, that’s a great point. And sellers love to say that upfront. Don’t worry about it. It’s all non binding. And so it wasn’t that all is but but even the non binding things like purchase price payment of the purchase price the adjustment to the purchase price which are all non-binding, oftentimes it sets the expectation certainly. And unless there’s some kind of material adverse change or some kind of.
00:18:29:22 – 00:18:30:24
Rajesh Kothari – Founder, Managing Director – Cascade Partners
Something different happens.
00:18:30:24 – 00:19:03:05
Kevin DiDio – Partner – Barnes & Thornburg LLP
Something comes out of diligence where the parties think that there’s now an opportunity to reiterate, as you said earlier, and whether it’s purchase price or something else, you the expectations have been set and you it’s all of our jobs, I think, as professionals on the deal team to educate the client about it, maybe about non-binding. However, this does set the expectation and you don’t want to, especially if there’s maybe a roll over where you’re now negotiating with your future harder.
00:19:03:07 – 00:19:03:28
Rajesh Kothari – Founder, Managing Director – Cascade Partners
You don’t want to get.
00:19:03:28 – 00:19:27:21
Kevin DiDio – Partner – Barnes & Thornburg LLP
Off on the wrong foot. And again, it certainly I’ve seen it happen, as I’m sure you have it it’s it doesn’t make for a great, you know, three or four months. It can be really challenging to bring folks back to the table. So we like to use those non-binding terms with with caution because it certainly does set the expectation of you don’t want it to to get the deal sideways.
00:19:27:21 – 00:19:28:18
Kevin DiDio – Partner – Barnes & Thornburg LLP
And what’s the deal?
00:19:28:20 – 00:19:49:12
Rajesh Kothari – Founder, Managing Director – Cascade Partners
Worst case, I think their true expectation is the right one, right? I mean, the biggest part of our job is the setting. Everybody’s expectations is upfront and clearly like this is what we expect the other to look like, expect the deal to be. Yes, everything and diligence matches what they expected pre diligence. Right. But we represented what the client shared about the business.
00:19:49:14 – 00:20:07:15
Rajesh Kothari – Founder, Managing Director – Cascade Partners
We got a great business is a clean business. Okay, well, we’ll get into diligence as long as those expectations are met. Everybody should live up to the deal that was defined. And so that becomes and that’s how we’ve use that as a critical tools like nothing’s changed. So the deal should stay as we described because. Right. There hasn’t been significant enough change.
00:20:07:15 – 00:20:29:27
Rajesh Kothari – Founder, Managing Director – Cascade Partners
And as you said earlier, right. When those changes happen, oh, we’re going to change the deal structure or we’re going to you know, we’re going to go from a stock deal to an asset deal or some other dynamic. It had a significant economic impact, the tax consequences, but can also have significant exposure to your liabilities. Again, or my switching from a stock deal to an asset deal, what liabilities am I leaving one of my assuming?
00:20:30:04 – 00:20:56:06
Rajesh Kothari – Founder, Managing Director – Cascade Partners
So when everybody’s on the same page and sticks to that plan that gets, as you said, it makes the process smoother and doesn’t mean things will change or ever something developed. Yeah, we all have to be prepared. But I think your word of hey, let’s, let’s set the expectation right. Both of the buyer and the seller become critical to making sure you can get to that finish line and negotiate that deal in a way that makes it make sense.
00:20:56:06 – 00:20:58:24
Kevin DiDio – Partner – Barnes & Thornburg LLP
That’s right. Yeah, I agree with that alarm.
00:20:58:26 – 00:21:21:27
Rajesh Kothari – Founder, Managing Director – Cascade Partners
And so, you know, we had a lot of discussion about this. And, you know, we both have seen where it’s been very important to our clients and we’ve been very successful at using it as a tool to get the best deal and craft the best deal. And that expectation right, that often I hear from my friends, my attorney friends and oh my gosh, their client came to them and there’s a sign now sign letter of intent already.
00:21:21:29 – 00:21:30:05
Rajesh Kothari – Founder, Managing Director – Cascade Partners
You know, without the help of their lawyer or without the help of any advisors. And and why do you think that’s really detrimental to the client in the end?
00:21:30:08 – 00:21:55:21
Kevin DiDio – Partner – Barnes & Thornburg LLP
Yeah, it’s it’s it does happen more often than you’d like it to. That’s right. And on the rare occasions, if you’ll, you’ll take a look at it and it won’t be that bad. But oftentimes there are certain things you certainly could point out and you do point out to the client that you could have negotiated to help position themselves to have a more favorable transaction.
00:21:55:21 – 00:22:22:13
Kevin DiDio – Partner – Barnes & Thornburg LLP
Maybe it’s economics or otherwise. You mentioned non-compete. Sometimes they don’t realize what what’s market. And if they just sign it with the understanding that they can, that it’s not binding. And my worried about it, we’ll negotiate it later. That becomes more challenging. So yes, ideally, we would love to be as close to the front of the negotiations as possible, even even in some of these deals before they get signed.
00:22:22:13 – 00:22:47:24
Kevin DiDio – Partner – Barnes & Thornburg LLP
There’s not a disclosure agreement signed. Right. And ideally, we’d like to be involved in as well, because it just it does make things go more smoothly. In my experience. Some clients are worried that it’s just more billable hours, but honestly, I think we could those of us who’ve been doing it for long enough can explain to a client that it does make for an overall more efficient process.
00:22:47:24 – 00:22:52:00
Kevin DiDio – Partner – Barnes & Thornburg LLP
The earlier we do get involved, which oftentimes will lead to fewer billable hours.
00:22:52:00 – 00:23:19:18
Rajesh Kothari – Founder, Managing Director – Cascade Partners
They notice that. And I would say, you know, I am not a lawyer, not at all. All it’s significantly different, right? Because all of those things that you spent time hammering out in negotiating during an ally and a letter in time, the scope of it, the depth of the language is not as robust as a purchase agreement. So that time spent there figuring it out saves you, you know, multiple hours on the back.
00:23:19:18 – 00:23:40:29
Rajesh Kothari – Founder, Managing Director – Cascade Partners
And when you’re having to renegotiate a position or build the clarity that didn’t exist in the letter of intent. So, you know, I you I’m not the person that’s doing the billable hours, right. But working in tandem with the client and the attorneys to get a deal done, spending those few dollars and making that investment upfront to get a good letter.
00:23:40:29 – 00:24:15:06
Rajesh Kothari – Founder, Managing Director – Cascade Partners
And that will pay dividends, I think, both in economics. Right. And in the parameters of the deal. You talked about some of those, but more importantly, it’s going to even say significant dollars on that negotiation and that documentation back and forth and trying to get the document to meet the expectations. Because if you didn’t define the expectations, then the letter over time, then everybody starting from completely different places and you’re doing that all their billable hours and you try to bring everybody together, The effort now, the expectations are aligned with reality.
00:24:15:08 – 00:24:43:06
Kevin DiDio – Partner – Barnes & Thornburg LLP
100%. That’s right. And I think the other thing it does the earlier on that professionals are brought in, whether it’s the financial advisors, lawyers, accountants, the whole deal team from the sell side perspective, it does a good job of sending the right message to the buyer and its team that the seller is taking this seriously, is putting the time and the resources necessary to do everything it can to make a successful transaction.
00:24:43:09 – 00:24:51:16
Kevin DiDio – Partner – Barnes & Thornburg LLP
Buyers don’t want to waste their time and money. They want to make sure that they’re dealing with the seller who’s taking the process seriously and is getting the right deal team around them.
00:24:51:19 – 00:25:22:03
Rajesh Kothari – Founder, Managing Director – Cascade Partners
Yeah, and the part of that right deal team is having a true M&A attorney right after companies attorneys that they’ve used for a long time. It might be a trusted advisor but a real I’m an attorney will know what’s market terms and market language. So when you’re crafting and negotiating that letter of intent or the purchase agreement, right, that you’re negotiating around and things with lots of things to renegotiate, I focus on those ones that are relevant to the transaction and that aren’t the industry standard or the norm accepted norms.
00:25:22:03 – 00:25:27:10
Rajesh Kothari – Founder, Managing Director – Cascade Partners
So so engaging someone like you, having to help in that process can be a great, great part of that.
00:25:27:12 – 00:25:43:20
Kevin DiDio – Partner – Barnes & Thornburg LLP
Well, I appreciate that, Raj. And on the flip side, working with a financial advisor that’s investment banking firm that has the necessary expertise is just as valuable, if not more so, for certain deals. So it’s really a team approach that works best for all parties.
00:25:43:20 – 00:25:53:26
Rajesh Kothari – Founder, Managing Director – Cascade Partners
Well, absolutely. Well, again, thanks for joining us for another cascade conversation. And again, thank you, Karen, for joining us on this discussion about letter of intent. Thank you very much.