Letters of Intent and Exclusivity in Dutch and US M&A

What US buyers and deal counsel should check before a Dutch M&A process moves into exclusivity

When I review a US-style letter of intent for the acquisition of a Dutch company, I first separate the provisions that are meant to operate immediately from the commercial terms that remain subject to a definitive SPA.

That distinction needs to be clear. Exclusivity, confidentiality, cost allocation and governing law may already create binding obligations. Purchase price, transaction structure, financing assumptions and closing conditions are often intended to remain non-binding until the acquisition agreement is signed.

Dutch law adds another point. Parties are generally free to discontinue negotiations, subject to a strict pre-contractual liability standard developed in Dutch case law. A heading stating that the LOI is “non-binding” therefore does not answer every question about the parties’ position during negotiations.

For US and UK deal teams, I would address that issue at the LOI stage rather than leave it for the SPA negotiation.

This article is part of my Dutch Deal Practice in a US and UK Context series on the Dutch workstreams that international M&A counsel should identify early.

Identify exactly which provisions are binding

US deal counsel will recognise the usual architecture: the transaction itself remains subject to definitive documentation, with selected LOI provisions made binding from signature.

That structure works in a Dutch transaction as well.

I would nevertheless avoid a general sentence stating that the LOI is “non-binding except where expressly stated”. The document should identify the binding provisions precisely.

In a private Dutch M&A process these may include:

• exclusivity;
• confidentiality or the continued application of an NDA;
• access to information;
• restrictions on announcements;
• transaction costs; and
• governing law and dispute resolution.

The operative drafting should match that division. A purchase price paragraph should not use language suggesting a present obligation to sell if the parties intend it only as the basis for further negotiation.

The same applies to transaction structure. If a US buyer proposes a share acquisition but still wants the ability to move to an asset deal after tax or legal diligence, I would not describe the structure as settled without preserving that flexibility.

The LOI becomes the working mandate for corporate finance advisers, management, lenders, accountants and lawyers. Ambiguous drafting at this point tends to reappear later in the process.

For the broader Dutch M&A document architecture, see M&A Insights: Dutch Deal Practice for Buyers, Sellers and Investors.

Exclusivity needs to bind the right parties

Exclusivity is usually the provision I spend most time on after the headline economics.

A buyer is about to incur due diligence and documentation costs. It wants enough time to investigate the business and negotiate the SPA without the seller simultaneously running a competing process.

The clause needs to say who is actually restricted.

In a founder-owned Dutch BV, for example, an exclusivity undertaking signed only by the target company may not give the buyer the position it expects if the shares are owned and sold by several individual or corporate shareholders. I would normally check that the actual selling shareholders are properly within scope.

The restricted conduct also needs to be clear. There is a practical difference between prohibiting active solicitation of alternative bids and prohibiting discussions in response to an unsolicited approach.

Duration matters for the same reason. The appropriate exclusivity period depends on what still needs to happen: diligence, financing, regulatory screening, works council consultation, SPA negotiation and preparation for a Dutch notarial closing.

If the buyer requests an extension, I would want to know what has been completed during the original period before advising a seller to stay off the market for longer.

Financing assumptions belong in the LOI

Financing is another point where I prefer clarity early.

A headline offer of EUR 30 million in cash means something different if the buyer still needs investment committee approval, acquisition debt or third-party equity before it can sign or close.

That does not mean every financing detail belongs in the LOI. It does mean that the seller should understand whether the buyer’s ability to proceed is dependent on financing and whether a financing condition is expected in the SPA.

For a buyer, the wording needs equal care. If financing is still subject to lender diligence or credit approval, the LOI should not create a different impression.

The same approach applies to due diligence.

“Subject to satisfactory due diligence” is common shorthand. I usually want more context around the scope and timing. If specific areas are expected to determine whether the buyer proceeds – for example customer concentration, IP ownership, regulatory exposure or the quality of EBITDA – it can be useful to identify them without turning the LOI into a diligence request list.

That also gives the seller a better basis for deciding whether the requested exclusivity period is commercially justified.

Dutch law does not treat the pre-contractual phase as legally empty

The Dutch Supreme Court’s CBB/JPO judgment remains the standard starting point for broken-off negotiations. The court confirmed that each negotiating party is in principle free to terminate negotiations. That freedom is subject to a demanding exception: termination may become unacceptable because of justified reliance that an agreement would be concluded or because of other circumstances of the case.

The analysis takes account of the entire course of negotiations, including the conduct of the party ending them.

For M&A drafting, I would draw a practical conclusion from that rule. A well-drafted non-binding clause is important. So is the way the parties actually negotiate after signing it.

The position becomes less comfortable if the parties progressively describe the transaction as agreed, remove material reservations, circulate near-final documents and act as though only execution remains, while the LOI continues to say that no transaction commitment exists.

US counsel may recognize related issues from US preliminary-agreement case law. I would not import US categories directly into a Dutch-law analysis. The Dutch test has its own case law and should be assessed on its own terms.

The Dutch transaction timetable should already be realistic

I also use the LOI to test whether the proposed timetable is feasible in the Netherlands.

A four-week route to closing may look workable from the commercial process schedule and still fail once the Dutch workstreams are mapped.

Depending on the target and the transaction, those workstreams may include works council consultation, SER Merger Code procedures, regulatory screening, third-party consents, corporate approvals and the preparation of the Dutch notarial transfer.

The solution is not to put each procedural detail into the LOI.

I want the assumptions behind the proposed signing and closing dates to be understood before a buyer receives exclusivity.

That becomes particularly important where the buyer proposes a long exclusivity period on the basis of a short expected execution timetable.

The later SPA can then turn those matters into specific conditions precedent, covenants and closing deliverables. The article US SPA Templates in Dutch M&A: What Needs to Change? addresses that next stage.

Practical conclusion

For a US-led acquisition of a Dutch company, I would use the LOI review to establish four things before the detailed transaction work begins: which provisions are already binding, who is bound by exclusivity, which financing and diligence assumptions remain open, and whether the proposed Dutch timetable can actually be delivered.

That gives lead counsel a much cleaner starting point for the SPA and gives the client a clearer understanding of what it has already committed to.

FAQ

Can the main commercial terms of a Dutch M&A LOI be non-binding?

Yes. The document should state that intention clearly and distinguish those terms from provisions intended to be immediately binding.

Is an exclusivity clause binding if the rest of the LOI is non-binding?

It can be. Exclusivity is commonly drafted as an expressly binding provision and should identify the parties, restricted activities and duration.

Can a party simply walk away from Dutch M&A negotiations?

Dutch law starts from freedom to terminate negotiations. In exceptional circumstances, termination can be unacceptable based on justified reliance or other circumstances. The full course of the negotiations matters.

Should financing conditions already appear in the LOI?

Material financing assumptions should be clear enough that buyer and seller understand whether the proposed price and timetable depend on external financing or approvals.

About Dirk de Waard

Dirk de Waard is a Dutch corporate and M&A lawyer, a dual Dutch-US national and partner at Venture Lawyers in Amsterdam. He advises international buyers, investors and law firms on Dutch and cross-border M&A transactions.

For US or UK lead counsel using their own LOI or transaction template, Dirk can review the Dutch aspects, identify binding and execution issues and carry the Dutch workstream into due diligence, SPA drafting and closing.

Dutch advice on letters of intent and exclusivity

If you are preparing or reviewing an LOI for the acquisition or sale of a Dutch company, contact Dirk at dirk.dewaard@viottalaw.com. He can review the Dutch-law aspects of the LOI alongside international lead counsel and identify issues that should be resolved before exclusivity, due diligence or SPA drafting begins.