A well-drafted letter of intent gives structure to the negotiation; an ambiguous one can create obligations, claims, and costs that neither party saw coming.

Key Points

• The letter of intent establishes the basic terms and rules for negotiating an M&A transaction.
• Mexicanlawdoes not specifically regulate it: its scope depends on what the parties actually meant to commit to.
• Simply stating that it is “non-binding” is not enough: some clauses are typically binding, while others are not.
• Clear wording and consistent conduct during negotiations reduce the risk of claims.

In a merger and acquisition (M&A) transaction, the letter of intent (LOI) is typically one of the first documents the parties sign to lay the groundwork for a potential acquisition, investment, or business partnership.

Because it is signed as a preliminary step—and is sometimes called a term sheet or memorandum of understanding—its scope is rarely reviewed with the attention it deserves. Many letters are described as “non-binding,” but not everything in them necessarily is, and both their wording and the parties’ conduct can lead to consequences that neither party expected.

What Is a Letter of Intent and What Does It Typically Include?

It is a preliminary document in which the parties set out the essential terms of the proposed transaction and the rules for negotiating it until they sign a definitive agreement. It typically covers:

• Structure and Price: Description of the transaction, indicative price, and adjustment or payment mechanisms.
• Due Diligence: Scope, timelines, and access to company
• Confidentiality: Protection of information exchanged during negotiations.
• Exclusivity: Commitment not to negotiate with third parties for a specified period.
• Conditions: Target dates, required approvals, and conditions for signing and closing.

When a “Non-Binding” Letter Can Be Binding

In Mexico, there is no specific regulation governing letters of intent. Therefore, what matters is not the name of the document or whether it is labeled “non-binding,” but rather the actual intent of the parties, the text of the document, and how the negotiation was conducted, in accordance with the rules of contract interpretation and the principle of good faith set forth in the Federal Civil Code (Articles 1796 and 1851).

In other words, a letter of intent can be a simple statement of intent in some respects and a firm commitment in others. Generally speaking:

• What is typically binding: Confidentiality, exclusivity, allocation of expenses, governing law, jurisdiction or arbitration, and the duration of the letter.
• What is typically not binding: Price, structure, closing conditions, and, in general, the obligation to complete the transaction.

Risks of an Ambiguous Letter

• Claims for breaking off negotiations in bad faith, or for expenses incurred in reliance on the expectations created.
• The document beingtreated as a binding promise to enter into the definitive agreement, if it already contains the essential elements of the transaction, rather than as a mere statement of intent.
• Breach of exclusivity or confidentiality obligations, triggering contractual penalties—or disputes over reducing them if they prove disproportionate.
• Difficulty proving damages when the transaction falls
• Exposurebefore the National Antitrust Commission if the parties coordinate their conduct or complete the transaction before obtaining any merger clearance required under the Federal Economic Competition Law.
• Duties to disclose material events and restrictions on the use of inside information under the Securities Market Law, when one of the parties is an issuer with securities registered in the National Securities Registry.

Benefits of a Well-Structured Letter

• Clarity on what each party is committing to upon signing.
• Protection of the information shared and of the negotiation
• A more organized negotiation, with a set timeline and clearlyassigned
• Lower risk of disputes if the transaction does not close.
• A better foundation for drafting the definitive

What to Review Before Signing

We recommend reviewing the letter with legal counsel before signing it, rather than waiting until negotiations have already become complicated. In particular, it is worth clearly separating the binding and non-binding sections, defining the duration and scope of exclusivity, specifying who bears the costs if the deal falls through, assessing whether antitrust clearance is required, and making sure that emails, meetings, and the course of the negotiations do not contradict what was agreed.

In an M&A transaction, the letter of intent is more than a preliminary document: it can define rights, costs, and responsibilities from day one. Drafting it carefully can make the difference between an orderly negotiation and an unexpected dispute.

At Roqueñí Abogados, we advise buyers, sellers, and investors on the drafting, negotiation, and review of letters of intent and preliminary documents in M&A transactions to protect their interests and reduce the risk of unforeseen obligations.

More than just legal advisors, we are your business partners.