• Comparing out of home letters of intent

    By Jennifer Sloane, Esq.

    Yesterday we discussed four musts for an out of home advertising letter of intent.  But what happens if you receive two or more LOI’s that contain the same price.  How do you determine which is a better deal?  Over the past 20 years, I have seen many Out-Of-Home Operators in this very situation.  There is no right or wrong answer.  Often it comes down to a “gut feeling” for a Seller.   But here are some tips on what to focus on if you are having trouble making a decision.

    • Closing dates.  Look at what closing date the Buyer is committing to.  If the Buyer is only willing to put in an LOI an Exclusivity provision (a provision that says that the Seller will not conduct any discussion or negotiations with any other potential buyer for a period of 60, 90, or 120 days), as opposed to provision that commits the Buyer to close by a certain date, then as the Seller, I would lean towards the Buyer that is committing to a specific closing date.   I would lean even more towards a Buyer that is willing to commit to a schedule of milestones that the Buyer must meet during due diligence before a Seller can walk away or have discussions with third parties on the sale of the assets.  Any Buyer that cannot commit to an outside closing date in an LOI is one that has no motivation to move at the faster pace sought by most Sellers.

     

    • The holdback.  Details on the holdback of a portion of the purchase price can make what seems like similar deals look very different. It is not uncommon these days for a Buyer to request that a portion of the purchase price be held back for a period of time post-closing to allow the Buyer to own and operate the assets and, thus, flush out any hidden problems with the assets that were different from what the Seller represented and warranted in the Asset Purchase Agreement.   But how much of the purchase price and for how long will the funds be held back?   It is not uncommon to see a 5% holdback for a period of 18 months.   This gives the Buyer just over a year to flush out problems, most of which would not present themselves until a year of ownership has passed.   So, if a Buyer is asking for a 20% holdback for 5 years, it will make the deal look a lot less attractive.  There is not “standard” holdback as every deal is different.   You may have one key asset in your inventory that is on a month-to-month lease and the Buyer may want to hold back that portion of the purchase price allocated to that specific sign and pay it out over a period of 5 years.   But these are the specifics the Seller needs to know to help distinguish one LOI from another.

     

    • The buyer’s history.  The Buyer’s history is another factor to consider when trying to decide which LOI to go with. There are some Buyers that have so much red tape to go through, and so many unreasonable requests that the process of selling to them is not worth it.  Some Buyers have private equity backers who might not understand the outdoor business and may, again, make the process of selling to that Buyer so painstakingly slow and unreasonable that the Seller should go with a different Buyer.  And then there are the Buyers who know the industry, know that there are some acceptable risks that Buyers take, and know how to get the deal done quickly.   The value of dealing with one of those Buyers in priceless.

    No two deals are alike, and these are just general guidelines to consider when you are looking at what seems like two similar LOIs.  Obviously, the best advice I can give is to call a seasoned Out-of-Home attorney as soon as you receive an LOI because they have seen it all and can help steer you in the right direction.

    Jennifer Sloane, Esq. has spent her entire legal career representing the Out-of-Home Industry.  After years as General Counsel for a national billboard company, Ms. Sloane opened her own law practice assisting outdoor operators with all their legal needs.  


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