Front-End Documents in M&A: Drafting Confidentiality Agreements, Letters of Intent, and Exclusivity Agreements

Before proceeding with due diligence and providing confidential information, the seller will want assurances that the information it provides will remain confidential and not be used in a competitive manner. Confidentiality agreements can be complex; the ABA model form is instructive as to the critical terms to consider.

Negotiating an M&A transaction is time consuming and costly for both the buyer and seller and can be disruptive to the seller's management of its daily operations. An LOI allows the parties to initially confirm there are no "deal-breaker" issues and determine whether there is a basic agreement on key terms.

The LOI should address the proposed structure of the transaction (i.e., stock sale, merger, asset sale), purchase price and form and timing of payment (i.e., cash, stock of the buyer, seller note), indemnification provisions, key closing conditions, and how transaction expenses will be allocated between the parties, among other terms. The ABA model form offers a good starting point for negotiation. Either as part of the LOI or pursuant to a separate exclusivity agreement, the buyer also will want assurance that the seller deals only with the buyer until the transaction is concluded.

Listen as our authoritative panel discusses confidentiality agreements, LOIs, and exclusivity agreements and the role of each in facilitating due diligence and a final agreement to the M&A transaction.