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Commonly referred to in the Letter of Intent (LOI), a clause or similar verbiage may be found asserting that, “from the date hereof, until the closing of the transaction contemplated by this LOI, the Company shall conduct its operations only in the ordinary course of business …” What is the definition of the phrase “only in the ordinary course of business” in this context?

After signing the LOI and through the negotiation process, buyers and sellers will have mutually agreed upon the balance sheet targets expected at closing. This clause is a precautionary measure taken to ensure that the seller will not make any drastic changes to the core business and/or its financial structure. Drastic changes may include:

• Significant capital expenditures
• Discontinuation of certain lines of business
• Increasing salaries
• Changing the nature of the business

Having an experienced M&A Team to recognize the nuances and protect your interest in a deal, provides peace of mind for buyers and sellers alike.