Two months after your graduation you started working for the major finance and tax consulting company NPV Advisors, LLP. The department of corporate finance which you have just joined decided to offer advisory services in M&A deals due to increased number of requests. You were assigned to the team that currently helps the large international public company H. Simpson and Son, JSC (The Buyer, or Simpsons) to acquire the private local target RaTrade, LLP (The Target). Both companies are retail chains and work in the same segments if distribution.

Background: As any international company seeking expansion in the regional market Simpsons, has previously considered to grow its presence through acquisition. In 2017 when the international supermarket chain decided to enter the local market, the company had very little knowledge of the existing competitive environment. The director of M&A Gregg Ruby and the CFO of the company, Joanne Boyce worked with the regional corporate development team and developed a plan that was later approved by the Board of Directors. The plan was to establish a separate regional business unit that will be part of the larger EU branch.

The new company was registered as a local LLP, 100% owned by Simpsons. The company was in charge of building, owing and managing the two new original outlets in the two largest local cities. CEO of the company was Mr. Andersen, one of the Simpsons special assignment specialists who had very good experience in various countries across the world.

Now after the first stage of entering the market, Simpsons are exploring all the possibilities for rapid growth. Ruby, Bouyce and Andersen came to a conclusion that organic growth could be too long of a process for the local market that was booming in the last 5 years and promised stable growth in the years ahead.

Local developments

The investments were very successful exceeding benchmark expectations in terms of sales volume, growth rates and cash flows. Two years after opening Simpsons has studied local market quite well. Last year they headhunted one of the largest rivals sales and marketing director, Mr. Guranash who has a more than 20 year experience the local market. He was a seasoned professional who wanted to develop the best local supermarket chain and believed that joining Simpsons was the best move for that ambition. He was very attracted by the employee stock option plan offered by Simpsons for the top management team.

Mr Guranash has become very valuable team member brining information not only about the market and specific characteristics of the local demand. He also shared his experience in the RaTrade and said that he knew the family that owned the business for twenty years.

In his opinion the network was a very interesting potential target. The network consisted of 20 prime locations across the country, the company also owned 5 malls which was part of the real estate business. RaTrade was a holding company, however only very small portion of assets represented non-core business mainly office buildings and unused warehouses and plots of land. RaTrade was one of the top three supermarket chains in the region. The company enjoyed strong steady cash flows however it lacked innovation in the retail business and invested little to no resources into improvement of management information systems.

The key problem of the business now was the inheritance issue. The owners, Mr. and Mrs. Garbour, are now in their mid-sixties, while their son and daughter had no interest in continuing the family business, each having their own carrier paths. At this point owners most likely made their mind to sell the business. According to the rumors one of the local rival networks already offered to merge, however, the owner is looking to cash out at least a large portion of the transaction deal.

Your advisory team role.

One morning you were invited to a meeting that your senior manager Diana Raub arranged with the Buyers M&A director Gregg Ruby and his team. It was a long discussion that included presentation by the Buyer, presentation by the There are several items that one of the more experienced team members put in to the minutes of the meeting. You were taking notes also and the following are the extracts from both minutes and your notes.

QUESTION:

Buyers M&A director Gregg Ruby: we need you draft a letter of intent that will be in compliance with local laws and regulations. However, we are somewhat concerned the Seller might go and shop around after receiving our preliminary offer

1) What is the function of LOI

2) What can you suggest adding to the LOI to help the Buyer to protect the deal? Be specific to the facts of the case!