{"id":14900,"date":"2020-06-26T08:15:08","date_gmt":"2020-06-26T06:15:08","guid":{"rendered":"https:\/\/www.best-value.be\/loffre-de-prix-limportance-de-sa-bonne-formulation\/"},"modified":"2025-07-09T11:43:59","modified_gmt":"2025-07-09T09:43:59","slug":"letter-of-intent-business-sale","status":"publish","type":"post","link":"https:\/\/www.best-value.be\/en\/letter-of-intent-business-sale\/","title":{"rendered":"The offer price : the importance of proper formulation"},"content":{"rendered":"

The Letter of Intent (LOI): the first step toward commitment<\/strong><\/h2>\n

When the time is right, the potential buyer will draft a Letter of Intent (LOI) <\/strong>or a purchase offer<\/strong> addressed to the shareholders of the target company. Once signed, this document marks the first mutual commitment<\/strong> in the business transfer process. Although a Letter of Intent is often considered legally non-binding<\/strong>, it can include penalty clauses that the buyer must pay in certain situations, particularly when they have failed to make reasonable efforts to move the deal forward. This compensation protects the seller<\/strong>, who may have granted exclusivity, invested time, and incurred expenses during negotiations.<\/p>\n

Among the various points addressed in an LOI, the price offered under certain conditions is typically the most discussed. But how should this price be proposed? As a fixed amount? Through a formula? And if so, which one?<\/strong><\/p>\n

The risk of a fixed price<\/strong><\/h3>\n

While a fixed price is easy to understand, it has major limitations. A company remains active throughout the sales process; business doesn\u2019t stop just because shares are changing hands. Accounting reflects the company\u2019s status at specific dates, at least annually, and always in hindsight. Financial information can only be shared once fully processed and approved. Therefore, negotiations between buyer and seller are inevitably based on past financials. <\/strong>But there\u2019s more. The \u201cblind period\u201d begins the day after the most recent financials and lasts until the LOI is signed. Then comes another long stretch before the transaction is finalised. Several months can pass between the latest approved accounts and the signing of the share purchase agreement, making the buyer\u2019s offer a gamble on the company\u2019s stability or growth.<\/p>\n

The (imperfect) adjustment mechanism<\/strong><\/h3>\n

A company’s value includes both tangible assets<\/strong> (real estate, equipment, stock, receivables, net cash) and intangible assets<\/strong> (human capital, brand, business model, customer base, reputation, etc.).<\/p>\n

Savvy buyers often separate the valuation of tangible and intangible assets. Their price proposal might include a fixed portion (representing mostly intangible value) and a variable portion (linked to tangible value).<\/strong> For example:<\/p>\n