What does a letter of intent (LOI) primarily outline?

A letter of intent (LOI) primarily serves to outline the key terms of a potential transaction. This document acts as a preliminary agreement that establishes the intentions of both parties involved in a merger or acquisition before proceeding to detailed negotiations and due diligence. The terms elaborated in an LOI typically include but are not limited to, the purchase price, payment structure, timeline for the transaction, and any conditions that need to be met for the deal to proceed.

By clearly defining these key aspects early in the process, the LOI sets the stage for a more thorough evaluation and negotiation. It is an essential step in the M&A process because it helps align the expectations of both parties and serves as a basis for the final purchase agreement, which will be detailed later in the process after due diligence and further negotiations are completed.

While other options touch on important aspects of the M&A process, they do not represent the primary purpose of an LOI. For example, discussions regarding negotiation power, due diligence methodologies, and final purchase agreement details come into play at later stages and are not the primary focus of the LOI itself.