RESTAURANT LETTER OF INTENT

Contact Neufeld Legal PC for corporate transactional and legal matters at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com

When looking to acquire a restaurant business, a letter of intent (LOI) is a crucial, though generally non-binding, document for purposes of commencing the investigatory and acquisition process. It is a preliminary agreement that outlines the key terms of the proposed transaction and serves as a roadmap for the rest of the acquisition process.

A. Demonstrates Serious Intent

An LOI signals to the seller that the buyer is a serious contender, not just a casual inquirer. By outlining a proposed purchase price and other key terms, the buyer shows that they have done their initial research and are prepared to invest the time and money required to move forward with the deal. This is essential for gaining the seller's trust and moving from informal discussions to serious negotiations.

B. Establishes a Framework for Negotiations

The LOI serves as a starting point for negotiations. It defines the core terms of the deal upfront, such as:

• Purchase Price: A specific price or a price range.

• Transaction Structure: Whether it's an asset or stock purchase.

• Payment Terms: How the purchase will be financed (e.g., cash, seller financing, promissory notes).

• Timeline: A proposed schedule for due diligence, finalizing the definitive agreement, and closing the deal.

By getting a mutual understanding on these big-picture items early on, both parties can avoid major disagreements later in the process.

C. Facilitates the Due Diligence Process

A key purpose of the LOI is to grant the buyer a specified period of time to conduct due diligence. This is a critical phase where the buyer thoroughly investigates the restaurant's financial, legal, and operational aspects. The LOI often outlines what information the seller must provide and sets a deadline for the buyer to complete their review. This allows the buyer to assess the business's true value and any potential liabilities.

D. Includes Legally Binding Protections

While the majority of an LOI is non-binding, certain provisions are typically made legally enforceable. The two most common are:

• Confidentiality Clause (or Non-Disclosure Agreement - NDA): This protects the sensitive information that the seller discloses during due diligence, such as financial statements, customer lists, and recipes.

• Exclusivity Clause (or "No-Shop" Clause): This provision prevents the seller from negotiating with or entertaining offers from other potential buyers for a specific period of time. This gives the buyer the security and time needed to perform due diligence without the risk of the seller accepting a competing offer.

E. Reduces Costs and Misunderstandings

Drafting a detailed LOI helps to clarify intentions and expectations before engaging in the more expensive and time-consuming process of drafting a formal purchase agreement. It acts as a guide, ensuring that lawyers and other professionals can focus their efforts on the essential terms. This can save both time and legal fees in the long run and helps to prevent misunderstandings that could lead to the deal falling apart.

In summation, a letter of intent for a restaurant acquisition is a significant document that transforms a casual conversation into a serious business transaction. It sets the stage for negotiations, grants the buyer the right to perform due diligence, provides key legal protections for both parties, and serves as a roadmap to a successful closing.

When it comes to the legalities of restaurant business mergers & acquisitions, that is when the law firm of Neufeld Legal P.C. comes into play. Such that when your company is seeking knowledgeable and experienced legal representation in orchestrating and completing business mergers, acquisitions and divestitures, contact us at 403-400-4092 [Alberta], 905-616-8864 [Ontario] or Chris@NeufeldLegal.com.