TLG Managing Partner Jeff Tenenbaum Quoted Extensively in CEO Update Article, “Signing an LOI and negotiating a final agreement”

TLG Managing Partner Jeff Tenenbaum was quoted extensively in a CEO Update article entitled, “Signing an LOI and negotiating a final agreement: Experts advise negotiating a letter of intent covering major issues so they are ironed out before exhaustive due diligence starts.”

The following are excerpts from the article:

You and the senior team of your association have evaluated the pros and cons and identified a promising merger or acquisition partner. You’ve had positive initial, informal conversations with the other organization’s leadership. The next steps are for leaders of both groups to sign a nondisclosure agreement (NDA) to ensure further talks are confidential, form an M&A steering committee and begin working toward a letter of intent (LOI) to merge.

An LOI ideally spells out what the new association will be — from a brand, governance and tax status perspective — and who will lead it when the merger is finalized.

“The LOI can be whatever the parties want it to be,” said Jeff Tenenbaum, an attorney specializing in nonprofit law.

“There are some circumstances where the LOI is extremely general and high level and doesn’t really say much of anything. Our preference, and we do a lot of these, is to make the letter of intent as specific as we possibly can, because doing so fleshes out the biggest issues, potential challenges and hurdles and forces the parties to address them,” he said.

Those issues include the structure of the board that will govern the combined entity, who will be CEO and whether the deal will be a true merger, an asset transfer and dissolution, or a joint venture agreement, Tenenbaum said.

“There may only be a sentence or two on each one of those key points, but it really forces that early negotiation and helps the parties determine whether the deal is workable and doable,” he said.

“Once an LOI like that is agreed to and signed, in our experience, all of the steps that follow tend to be a lot easier.”

Getting started: NDAs and steering committees

Before entering any formal negotiations on an LOI and other aspects of the merger or acquisition, key association leaders, those privy to the talks, should sign an NDA.

“As soon as you start any really meaningful discussion, there’s going to be a sharing of sensitive, comprehensive information,” said Jeff Tenenbaum, an attorney specializing in nonprofit law.

“Besides binding confidentiality obligations, the other thing that we sometimes put into these merger-related NDAs is an exclusivity period that both parties agree to not have any discussions and negotiations with other groups about a potential merger for some period, like six months.”

After signing the NDA, the parties would form a steering committee to begin more serious negotiations. Such committees are typically composed of top volunteer leaders of both organizations and possibly the CEOs. The steering committee would then begin pre-diligence — the first look at each organization’s financial and legal picture — and negotiation toward a letter of intent (LOI) to merge.

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After the LOI is signed, the time-consuming and expensive process of due diligence starts. That includes an exhaustive assessment of the financial position of both organizations, including any leases or expected capital expenditures — which may necessitate the use of an outside accounting firm — and of legal risks such as potential liability in any pending litigation against either of the parties, which will run up the legal bills.

That’s another reason Tenenbaum recommends a robust LOI.

“You don’t want to do all that unless there has been a meeting of the minds between the parties on the core issues,” he said.

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An attorney like Tenenbaum could get involved in the communications plan to review the messaging and make sure it doesn’t go beyond what has been agreed to in the letter of intent.

Typically, the organizations will craft a public statement once the LOI is signed, Tenenbaum said. If the LOI is not as comprehensive as he recommends or if major points are yet to be negotiated, “you don’t want to put something out that says, ‘Yep, we’re going to merge,’” he said.