1. Demonstrates Commitment. While the majority are non-binding, the parties’ willingness to negotiate and execute a letter of intent demonstrates a preliminary commitment to the deal.
2. Confirms Material Terms. Reaching an agreement on material deal terms usually gives the parties’ confidence to continue to negotiate in good faith.
3. Removes Ambiguity / Identifies Dealbreakers. Getting into the detail on the “must haves” for each party is important before investing further time and money into the preparation of the definitive documents.
4. Manages Expectations. Setting a timeframe for the (a) execution of the letter of intent, (b) drafting and execution of the definitive documents and (c) closing of the proposed deal will manage the parties’ expectations for the deal process.
5. Cost Efficient. Providing the attorneys with agreed up framework of the deal usually results in a quicker and more accurate first draft of the definitive documents and less negotiation between the parties moving forward.