A Letter of Intent is not a done deal.
While receiving a LOI from a buyer can certainly feel like a huge win…
An LOI is simply a proposal. It sets the tone, timeline, and expectations for everything that follows.
If you don’t take the time to negotiate it thoroughly, you may end up with less favorable terms later.
That’s why in this week’s newsletter, we’re breaking down:
- 3 things every seller should understand about an LOI
- 2 frameworks to evaluate risk and structure
- 1 action step to help you prepare
3 M&A Insights On LOIs
1. The LOI isn’t the deal
An LOI creates a framework for your deal, but it is not the deal itself. Specifically, the Letter of Intent outlines deal terms: structure, diligence, and potentially working capital.
All of these areas still need to be finalized after the LOI is signed. Treat it as your first negotiation.
2. Exclusivity gives away your leverage
Once you sign an LOI, you’re typically locked into one buyer for 60–90 days. Prior to signing an LOI the seller typically has leverage, and more flexibility when creating the terms of the deal.
This flips once an LOI is signed and exclusivity is granted. That’s why it’s so important to clarify deal terms before signing.
3. Vague language costs sellers real money
Phrases like “up to $10 million” or unclear working capital targets often lead to retrades or last-minute adjustments that erode value.
You want to be as precise as possible. Buyers often bury vague or one-sided working capital targets in the LOI. This is one of the biggest areas where sellers lose money late in a deal.
2 Frameworks To Evaluate Risk & Structure
Pause and reflect
Sellers often think leverage peaks at the LOI stage. This simply isn’t true.
Your influence is strongest before you sign, as buyers are still competing.
While it can be exciting to receive a LOI, never sign before you are ready.
Take a moment to pause and reflect.
Talk to your lawyers and advisors about the LOI before you sign.
And get clarity if the terms match the type of exit you want.
The 3 Buckets of LOI Terms
Every LOI includes language in these three areas:
- Price + Structure: Purchase price, earnouts, seller notes, equity rollover
- Binding Clauses: Exclusivity, confidentiality, access to information
- Diligence & Timeline: Working capital targets, closing conditions, diligence window
Understand what’s negotiable (and what’s binding) before signing.
List Of Our Completed Transactions
1 Action Item This Week
Outline your must-have’s.
List the 3 areas you’d most want clarified in an LOI before agreeing to exclusivity.
Start with the terms that matter most to your exit. Knowing your must-haves ahead of time helps you stay in control when the offer comes in.