• Four musts for an out of home advertising letter of intent

    By Jennifer Sloane, Esq.

    You’ve worked hard for more years than you want to admit, trying to get to this very point… selling your out of home advertising assets.  You put some feelers out, had a few Confidentiality Agreements signed, sent out a basic spreadsheet of your inventory, and low and behold, you’ve received multiple Letters Of Intent (LOI) regarding the purchase of your company’s assets.  Now what?  What are the minimums you should look for in an LOI?  If both deals are offering the same amount of money, how do you determine which is a better deal?  I have been representing Out-Of-Home Operators for 20 years in this very situation and here is what I’ve learned over the years:

    LOI’s should contain, at a minimum, 4 basic items:

    • What is being purchased. The LOI should clearly state what is, and what is not, being purchased.  I know that sounds simple, but you’d be surprised.  Some LOI’s fail to identify inventory, office equipment, bucket trucks, etc., and without its reference in the LOI, the Seller is likely to make other plans for these assets.  The Seller may price out the sale of these items to third parties and intend to make money (over and above that being paid by the Buyer) from the sale of these assets to third parties.  Or the Seller may have plans to use this equipment for other purposes post-closing.   A Seller agrees to a price based on a specific list of assets identified in the LOI.  So, if a Buyer fails to list assets in an LOI and later tries to include them in the Asset Purchase Agreement, as the Seller you should negotiate a higher price for the value of those assets.   Additionally, if your assets include properties where an affiliate owns the underlying property or a permanent easement on a third party’s property, what will be purchased by the Buyer for these properties?  Are they buying the real estate or the easements?  Or are you keeping the properties and signing a lease with the Buyer?  And if you are signing a lease, what are the rates the Buyer will be expecting on those leases?   All of these facts can affect the price substantially, so they need to be unambiguously spelled out in the LOI.

     

    • Price for the assets. Again, seems basic for an LOI to include the price, right?  Well, there are many nuisances to the price.  Is it paid in cash, stock, or a combination of both?  Is there going to be a holdback, and if so, what percentage of the purchase price will be held back and for how long?  What items will be prorated and how will that increase or decrease the purchase price paid?

     

    • Closing date. Usually a Buyer and a Seller’s intent on when the deal will close is very different.  A Buyer wants to take its time to make sure there are no hidden problems in the assets they are buying.  And of course, every Seller wants to close as soon as possible.  These varying interests make it hard to agree upon a Closing Date.   Often an LOI will outline a date that represents the latest date the Buyer has to close on the transaction and, should the Buyer fail to close by that date, the Seller is free to sell the assets to any other third party.  Without this date, the Buyer has no motivation to hustle towards closing.   If you are really concerned that the Buyer will drag their feet, you can write in your LOI different stages of deadlines the Buyer has to meet; for example, a date upon which to produce a first draft of an Asset Purchase Agreement, or a date upon which all title work must be ordered.  And should Buyer fail to meet any of these deadline, the Seller can walk from the deal.  Creating these milestones saves the Seller from having to wait until the closing date deadline before being able to walk from a deal when the Buyer is not moving fast enough.

     

    • Deal killers. Let’ s say a Buyer looks at your inventory and would not do the transaction unless you get a specific board to 80% occupancy, or a specific lease has to be renewed for a longer term, or one or more employees must come and work for the Buyer post closing.   As the Seller, you need to understand these deal killers to see if they are ones that you can live with for the price being paid.  Some may be changes that you are unable to comply with (i.e., maybe you know that the landowner won’t ever sign a long term lease because for 50 years that landowner would only do a month-to-month lease).   This is something you and the Buyer need to flush out at the LOI stage so that you don’t waste each other’s time.

    No two deals are the same and therefore, these are just general guideline to consider when reviewing an LOI.  However, nothing compares to talking with a seasoned Out-Of-Home attorney who can help you walk through the various issues in your LOI.   Tomorrow we will discuss how to differentiate two seemingly similar LOI’s.

    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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