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DN127

Financing Contingencies

Assuming your middle-market aerospace and defense company is attractive to the market, your M&A Banker will be able to identify numerous potential buyers during the solicitation phase of the sale process.  As we discussed in Deal Note® 62, Phase 3 of our sale process is completed upon the execution of a mutually acceptable Letter of Intent (“LOI”) between the seller and the winning bidder.

While LOI’s are typically not binding upon the parties (other than such terms as confidentiality and exclusivity), a financing contingency allows a buyer to delay or renegotiate the terms of the purchase if their financing partners (e.g., lenders) require it.  We advise our clients to avoid financing contingencies because it eliminates the buyer’s ability to use this argument – that they need to delay or renegotiate the deal because their financing partner requires it.  For this reason, buyers prefer to have financing contingencies in their LOIs.

Over the past 23 years, more than 90% of our clients have been successful in entering into LOI’s without financing contingencies.  They have accomplished this through well-managed sale processes, in which numerous qualified competitive offers were received and accordingly our client had alternatives and therefore significant negotiating leverage.

Have a great day everyone,

Bill Alderman
Founding Partner