Identify Pre Loi Issues Scenario 01

Skill: Pre-LOI Issue Identification Memorandum

1. Subject-matter triage

• Use this skill when the task is to review preliminary deal materials and flag what must be clarified before LOI signing.
• Treat the work as issue-spotting from incomplete sell-side materials, not full diligence or definitive legal advice.
• Separate true pre-LOI blockers from matters that can wait for confirmatory diligence or be managed in the definitive agreement.
• If the materials cover multiple entities, periods, facilities, or transaction paths, enumerate each scope item first and analyze them separately rather than collapsing them into one pass.

2. Failure modes the skill is correcting

• Issues are identified from preliminary materials without systematically identifying what is missing and therefore unknowable at LOI stage.
• Financial summary figures are accepted at face value without checking for internal inconsistencies across decks, teasers, data room indexes, and process materials.
• Regulatory and operational risks are described in generic terms instead of being tied to the business model and the specific pre-LOI clarification needed.
• The memo blurs issues that should be solved before signing from issues that can be allocated by representations, covenants, indemnities, or closing conditions.
• The output lists concerns without ranking them by seriousness, causing loss of triage value.
• The output diagnoses problems without giving an actionable next step tied to the transaction timeline.

3. Legal frameworks / domain conventions that apply

• Pre-LOI diligence is bounded by the materials actually available at the early bid stage; the task is to identify material risks, gaps, and inconsistencies that affect whether, how, and on what terms the buyer should proceed.
• The LOI is typically where the buyer locks in economics, structure, diligence access, exclusivity, and any pre-signing conditions that are necessary to avoid a mispriced or unworkable bid.
• For an environmental services business, focus on permitting, environmental compliance history, remediation or response obligations, site-specific liabilities, contract concentration, customer churn, subcontractor reliance, and any operational dependency that can change value or execution risk.
• Preliminary financial summaries must be checked against supporting schedules and source materials for internal consistency; unexplained movement between summaries is itself a diligence flag.
• A missing document category in the preliminary data room index is an information gap, not a neutral absence; the lack of production should be called out as a requested clarification.
• When legal propositions are stated, identify the controlling authority or governing instrument if it appears in the materials; otherwise cite the relevant statutory, regulatory, or customary corporate/M&A convention by name rather than speaking in conclusory generalities.
• Apply established environmental-law and transaction-diligence conventions where relevant, including permit compliance, disclosure obligations, and liability allocation principles under the applicable regulatory regime.

4. Analytical scaffolds

• Start with the business model: what the target does, how it earns revenue, where operations occur, and what facts in the materials suggest concentration or dependency.
• Cross-check the management presentation, CIM, teasers, and index for mismatched figures, dates, naming conventions, customer descriptions, margin data, or risk descriptions.
• Review the document index category by category and note whether core diligence buckets are present or missing: corporate, financial, tax, employment, real estate, environmental, litigation, insurance, IT/cyber, and commercial.
• Review process constraints: bid deadline, access limits, no-shop or exclusivity dynamics, Q&A timing, and any other restrictions that affect what can realistically be resolved before LOI.
• For each issue, determine whether it is:
  • a fundamental business or valuation issue,
  • a deal-protection issue suitable for the LOI, or
  • a missing-information issue that requires follow-up before signing.
• For each issue, record the source material that triggered it, the reason it matters now, and the practical consequence if it is not resolved.
• When multiple facilities, permits, customer types, or risk periods appear in the materials, analyze each separately and do not assume one site or contract represents the rest.
• Give every item an ordinal severity level from a fixed scale stated once in the memo, and keep the same scale throughout.

5. Vertical / structural / temporal relationships

• Distinguish pre-LOI unknowns from post-LOI diligence items:
  • pre-LOI unknowns affect bid price, structure, go/no-go, or conditions to sign;
  • post-LOI items can be handled through confirmatory diligence and definitive documentation.
• Track how an issue moves vertically through the deal stack: business fact → valuation effect → legal risk → LOI term or closing condition.
• Tie each issue to the stage at which it becomes actionable: before LOI, at LOI, during exclusivity, or in definitive documents.
• Where a risk depends on time, identify whether it is historic, current, or forward-looking, and whether the available materials cover the relevant period.
• If the issue turns on a threshold, exposure, concentration, or duration, compare the disclosed information to that benchmark using the figures in the source set; if the source set does not provide the necessary numbers, say so expressly.

6. Output structure conventions

• Produce a single issues memorandum, not a diligence report and not a transaction memo.
• Use a conventional issue-memo shape:
  • brief executive overview,
  • prioritized issue list with severity labels,
  • financial and valuation concerns,
  • legal/regulatory concerns,
  • operational and commercial concerns,
  • missing information / diligence gaps,
  • recommended LOI or pre-LOI follow-up actions.
• For each issue entry, include:
  • severity,
  • concise statement of the issue,
  • source or trigger in the preliminary materials,
  • why it matters before signing,
  • the likely consequence if unresolved,
  • the immediate action needed.
• When the materials support a legal proposition, name the rule, statute, regulation, or customary M&A convention supporting it; do not leave legal conclusions ungrounded.
• Use exact, operative language. Do not merely summarize the materials; state the risk, the gap, and the decision implication.
• End with a Recommended Actions block that assigns each next step to a role likely to own it in the deal process and ties it to the bid, LOI, or diligence timeline.
• Keep the memo focused on pre-LOI triage; do not drift into drafting definitive-agreement language unless the point is to identify what the LOI should reserve, condition, or exclude.