The Letter Of Intent Procsess in Merger and Acquisition Transactions 20 November 2025

Accordingly, the preparatory stage is a period that shapes the overall direction of the M&A process and reflects the parties' underlying transaction motivations. Within this framework, the parties conduct preliminary discussions to evaluate their core expectations regarding the transaction and to clarify the scope of the process. These initial-contact discussions serve both to foster trust and transparency between the parties and to ensure that subsequent steps progress on a sound and well-structured basis.
 

1. Preparatory Phase / Letter of Intent

At this stage, confidentiality agreements (NDA) may be executed to safeguard commercial and technical information that is likely to be exchanged throughout the process. Once confidentiality is ensured, the parties may initiate a preliminary due diligence process in which the legal, financial, operational, and sector-specific aspects of the target company are examined at a high level. Therefore, in this period, the initial findings regarding the company's current position, potential risks, suitability for the transaction structure, and valuation approach are identified; moreover, preliminary negotiations may also emerge regarding the prospective transaction structure (share transfer, asset transfer, acquisition through participation, or hybrid models), payment mechanisms, conditions precedent and closing conditions, employee-related matters, and applicable regulatory requirements. Accordingly, before advancing to subsequent stages, the parties are able to assess whether the transaction is logically and commercially viable.
 

If the preliminary discussions progress positively, the parties generally prefer to execute a letter of intent ("LOI") in order to define the framework of the negotiations. A letter of intent is a document that, typically without creating a binding legal commitment, sets out the parties' intentions regarding the transaction process, records the key matters on which they have reached consensus, and establishes a roadmap for the subsequent steps. This document also contributes to narrowing the scope of the final agreement to be concluded between the parties, thereby enhancing the efficiency of the negotiation process. Where deemed necessary, exclusivity provisions, which restrict the parties from engaging in parallel negotiations with other potential buyers or sellers during this period, may also be considered.
 

All of these steps systematically shape the legal and commercial framework of the agreement to be executed in line with the eventual transaction structure. Accordingly, the preparatory period functions not only as the initial phase of the M&A process but also as a strategic assessment stage that enables the subsequent phases to progress in a sound and coherent manner.
 

2. Legal Nature of Letters of Intent

The legal nature of letters of intent is among the topics frequently debated in both doctrine and practice. In legal doctrine, the prevailing view holds that letters of intent generally do not produce binding legal effects. This is primarily because letters of intent are, by their nature, preparatory documents that outline the parties' intentions regarding the transaction process, indicate the direction of negotiations, and provide guidance to the parties before a definitive agreement is concluded. In this respect, while letters of intent demonstrate that the parties intend to enter into a contract, they do not, by themselves, create a contractual relationship or impose an obligation on the parties to conclude a contract.
 

Nevertheless, it cannot be asserted that letters of intent are entirely devoid of binding effects. In practice, letters of intent often go beyond merely representing a declaration of intent regarding the negotiation process and may confer actual binding force to specific provisions. In particular, clauses relating to confidentiality, exclusivity, non-compete obligations, restrictions on soliciting employees, and the parties' responsibilities for expenses can be drafted in a binding manner if explicitly agreed upon by the parties. The enforceability of these provisions is considered significant both in terms of protecting the parties' interests and in providing the necessary legal framework to ensure that the negotiation process proceeds effectively.
 

For example, in its decision dated 08/10/2020 (Case No. 2018/889  - Decision No. 2020/632), the Istanbul 7th Commercial Court of First Instance examined the nature of a letter of intent dated 17/01/2014 between the parties. The court found that the letter of intent did not encompass all essential elements and that the parties did not possess an intention to be legally bound; accordingly, it did not qualify as a contract. Although certain matters such as confidentiality and the payment schedule were addressed in the letter, the court emphasized that these provisions did not render the document binding in its entirety. Furthermore, the court rejected the validity of penalty clauses pursuant to Article 179 of the Turkish Code of Obligations. The ruling clearly illustrates that the primary function of a letter of intent is to record the parties' written declaration of intent to advance negotiations, and that binding effect can only arise with respect to matters explicitly agreed upon.
 

Therefore, when drafting a letter of intent, it is essential to clearly distinguish between binding provisions and non-binding statements in a manner that leaves no room for doubt. In practice, most letters of intent include a dedicated section titled "Binding Provisions," which encompasses only those clauses to which the parties expressly intend to be legally bound. Additionally, it is important to incorporate explicit "non-binding" language clarifying that the remainder of the letter is not binding and does not impose an obligation on the parties to continue negotiations. Failure to do so may create legal risks, as the wording or principles of interpretation could otherwise give rise to claims that one party is compelled to proceed with negotiations against its will.

3. Conclusion
 

In summary, the primary function of letters of intent is not to compel the parties to enter into a final agreement, but rather to frame the negotiation process, clarify mutual expectations, and outline the rationale of the transaction. However, the parties may render certain provisions binding in accordance with their explicit intentions, in which case the letter of intent becomes a "hybrid" document containing both binding and non-binding elements. Careful management of this stage serves not only the execution of the eventual contract but also the alignment of post-transaction processes.