The LOI is where the deal takes shape. This guide covers what an LOI includes, which terms are binding, how to negotiate effectively, and the most common mistakes founders make at this critical stage.
Published by Parkland Capital Partners · Updated 2026
A Letter of Intent outlines the key terms of a proposed acquisition before the parties proceed to definitive documentation. It serves as the roadmap for the transaction and establishes the framework for final negotiations.
Key terms typically addressed include: purchase price and form of consideration (cash, stock, earnout, rollover equity), deal structure (asset sale vs. stock sale), key assumptions and conditions, due diligence scope and timeline, representations and warranties overview, transition and employment terms, and the expected closing timeline.
The LOI is where the commercial deal takes shape. Getting these terms right – before entering the expensive and time-consuming due diligence phase – is critical.
Most LOI terms are non-binding, meaning either party can walk away if the deal doesn’t come together during due diligence. This includes the purchase price, deal structure, and most commercial terms.
However, several provisions are typically binding: the exclusivity (no-shop) period, confidentiality obligations, expense allocation, and governing law. These binding provisions protect both parties during the diligence period.
Understanding which terms are binding is critical. You don’t want to inadvertently lock yourself into unfavorable commitments before the deal is fully negotiated.
The exclusivity provision prevents the seller from soliciting or entertaining other offers for a specified period – typically 45 to 90 days. This gives the buyer confidence to invest time and money in due diligence.
For the seller, the key is keeping the exclusivity period as short as reasonable and including clear milestones the buyer must meet. If the buyer fails to hit diligence milestones or attempts to retrade (reduce the price after exclusivity), a well-drafted LOI gives you the ability to terminate exclusivity and return to market.
Never grant unlimited exclusivity. Every day under exclusivity is a day you cannot negotiate with other buyers.
LOI negotiation is where having an experienced M&A advisor pays the greatest dividends. Key strategies include:
Never accept the first offer – there is almost always room to improve terms. Focus on the complete package: price, structure, earnout terms, post-close employment, and transition provisions all interact. Use competitive tension – having multiple interested buyers is the strongest negotiation lever available.
Negotiate earnout terms carefully. Ensure milestones are clear, measurable, and within your control. Scrutinize working capital mechanisms, indemnification provisions, and escrow terms – these seemingly technical items can have significant economic impact.
Focusing only on headline price while ignoring structure, earnout probability, and net proceeds. A $10M offer with 30% rollover and a 20% earnout delivers very different economics than a $9M all-cash offer.
Granting extended exclusivity without milestone requirements. Once you’re locked up, your leverage diminishes rapidly.
Failing to negotiate key transition terms – post-close employment, non-compete scope, and transition responsibilities should be addressed in the LOI, not left to the purchase agreement.
Signing an LOI without experienced M&A counsel reviewing every provision. The LOI sets the framework for everything that follows.
