If the first preliminary talks between the buyer and seller of the German company have been successful and there is a buyer who has expressed interest on the basis of the available information and who is also a potential buyer from the seller's point of view, the conclusion of a so-called Letter of Intent ("LOI", sometimes also called "Memorandum of Understanding" - "MOU" - or "Heads of Agreement" or "Term Sheet") can, on the one hand, underline the seriousness of this interest and, on the other hand, have important psychological effects on negotiations regarding the German M&A Deal.
The letter of intent is not specifically regulated by German law, and in German M&A practice there are variants tailored to the needs of the individual case, ranging from completely legally non-binding to legally binding agreements similar to a preliminary contract or an option agreement. Both the buyer and the seller can declare the letter of intent unilaterally - if necessary also only in letter form - or also agree on it as a bilateral declaration. In most cases, however, the parties then declare mere intentions and do not establish any legal obligations or commitments. Nor does this usually give rise to any obligation to carry out the transaction. To avoid making mistakes already at this stage of the German M&A transaction, please feel free to contact us at any time. Based on 3Q|Law's many years of experience as a specialists in German M&A, it is also particularly advisable to set the course for the rest of the sales process very early on in the LoI. Otherwise, weeks may pass with cost-intensive due diligence reviews and contract negotiations, only to discover in the end that the parties' ideas on warranty contents and the attribution of knowledge and fault of vicarious agents are too far apart.