1st installment of Navigating M&A from Pre-LOI to Close.
Blog by Ben Greenberg, VP of Corporate Development at IT Solutions
If you’re considering M&A initiatives or navigating the challenges of growing your MSP, we invite you to connect with Ben and explore our M&A resources.
When businesses look to engage in M&A activity, they often sign a letter of intent (LOI) to lay out the basic terms and conditions of the deal before detailed negotiations and due diligence take place.
Before a LOI is signed, there’s a significant amount of work for both sides in the acquisition of an MSP. Buyers must have a solid understanding of the business to avoid surprises and sellers need to provide accurate and comprehensive information to inform deal value. For both, the process gets incrementally more intense across phases as they get closer to finalizing.
A firm understanding of financial and operational metrics, along with cultural fit, can help guide valuations and find opportunities where a combined organization can accelerate performance. Buyers and sellers should also understand the macroeconomic factors that can impact deal points. Although both parties want to minimize wasted time, putting in the work pre-LOI is crucial to increasing deal certainty.
Key Steps
Depending on the situation, you may be asked about an indication of interest (IOI), expression of interest (EOI), or LOI. IOIs and EOIs are typically used interchangeably and via a bank-led, multi-round bidding process, whereas LOIs are more efficient for proprietary deals.
| Indication of Interest (IOI) | Expression of Interest (EOI) | Letter of Intent (LOI) | |
|---|---|---|---|
| Use | Auctions prior to LOI or early stage of proprietary deal | Auctions prior to IOI or LOI | Auction or proprietary deal prior to detailed diligence |
| Level of Formality | Informal | Informal | More formal |
| Purpose | Gauge initial interest and value range | Similar to IOI, may be used interchangeably | Outline key deal terms and establish a framework for further negotiations |
| Binding Nature | Non-binding | Non-binding | May have some limited binding elements |
| Content | Brief overview of interest, potential price range, and structure | Similar to IOI | Price, structure, exclusivity, due diligence process |
| Timing in M&A Process | Early stage, before due diligence (after CIM/CIP, if provided) | Similar to IOI | After initial discussions and some due diligence |
| Next Step | Management presentation and sometimes VDR access | Management access, additional data | Detailed diligence |
If mutual interest exists after initial discussions, you will want to commit to a non-disclosure agreement (NDA) to share confidential information across parties. Once that’s done, you will continue to meet with management to peel back the inner workings of the business, including items such as:
The buyer will construct an initial data request to allow them to independently evaluate the financial and operational metrics of the seller. Common requests in the MSP industry include:
During this phase, sellers should consider doing their own diligence and identifying questions for the buyer to ensure the buying entity is the right fit, especially from a cultural perspective.
The key goal in this phase is to gather enough information to ensure there is strategic and financial alignment to move to the next stage. Prepared buyers will often share their findings and analysis with a seller and discuss trends, profitability, and growth plans to better understand the business and form a valuation. Sellers should beware if this type of due diligence doesn’t happen pre-LOI, as it can increase the chance of deals breaking down at later stages. Don’t rush this process.
At IT Solutions, we pride ourselves on our thorough and proven due diligence process. Our experienced team ensures that sellers have a comprehensive understanding of IT Solutions’ operations and culture, fostering smoother transactions and higher deal certainty. Trust M&A with IT Solutions to guide you through every phase with precision and expertise.
Whether you’re looking to confidentially discuss exiting your business or strategies to foster growth from within, we invite you to connect with Ben Greenberg, VP of Corporate Development at IT Solutions.
We’ve got answers — fast, clear, and tailored to your needs. Let’s talk tech.
