Dear Friend,

Let’s take a quick look at what a “letter of intent” is and isn’t. I say “quick” because a complete look at the subject would turn this post into a book.

Letters of intent, often referred to in shorthand as “LOIs”, are a usual, but neither legally required nor universal, step in an acquisition or “M&A” transaction. That said, they can be used in many other types of contracting arrangements as well.

Because they’re most often conceived of in the course of an acquisition, let’s focus on an LOI in that context, a context in which they are prepared by the buyer.

It’s easy to see an LOI as a very odd document in that most of its terms, including but not limited to those pertaining to price, timing of closing, and terms of purchase and payment, are specifically set out as nonbinding. On the other hand, provisions pertaining to what’s essentially an exclusivity period running in favor of the buyer, continuing promises of confidentiality, and choice of law provisions are specifically set out as binding.

Importantly, even if specifically agreed to be nonbinding, deal term provisions set out in an LOI take on psychological importance – they become the starting point for later negotiations, and it is always harder to negotiate against an entrenched position.

More so than the few specifically binding provisions, the generally nonbinding nature of an LOI lures many sellers into make a significant strategic mistake: They fail to advocate for positions and definitions that would best be addressed up front in the LOI even if “nonbinding”, in order to avoid putting themselves in a weakened negotiating position months ahead of the preparation of the definitive deal documents.

I've written previously about the power of framing – of creating context – to support your group's position in negotiations. For example, framing negotiations around quality, not cost.

Or, as an example of the same argument coming from close to the polar opposite, consider the government's argument that accountable care organizations are all about quality, not cost.

Related to framing is the power of the story, from the fairy tales that your parents read to you when you were a child to the story of your group and its meaning to the hospital, to referring physicians, to patients, and even to the community at large.

A few minutes before writing this, on a whim, I googled "who discovered America?" I found the popular stories of Christopher Columbus, claims that it was actually Leif Ericson or other Vikings, and others citing Chinese explorers. Or was it the Basques? Others pooh-pooh all this and say what about the Native Americans? But even they didn't "come" from here – their ancestors came from Asia.

My point isn't who discovered America but rather that there are a number of believable stories about who discovered America. People buy in to the story they believe and discredit the others. So the underlying truth really isn't the point – no one can force you to believe; you do all the "believing" yourself in your own head.

Now, of course, it's really not that simple because while someone can't force you to believe, they can certainly create conditions that make it conducive for you to believe. That's the whole point of advertising and sales - telling a story that resonates with you so well that you develop a coherent belief.

What story are you telling about your practice? If you're not telling one, or if you're not telling it convincingly, someone else is out there telling another story about you or your group that is likely to be believed.

These are not amorphous or esoteric concepts. They have real-world application. They are as much a part of negotiating your next contract, for example, an exclusive contract with the hospital, as in the face-to-face stage of negotiation when you're sitting across the table from one another hammering out paragraph 47.

Abe Lincoln learned to write using a piece of charcoal from the fireplace. George Washington cut down the cherry tree and admitted it. What's your story?