Letter of Intent (LOI)

A typical M&A letter of intent specifies the proposed purchase price (often expressed as an EV/EBITDA multiple or a fixed enterprise value), the deal structure (a stock deal vs asset deal), the form of consideration (cash, stock, or a mix), key conditions to closing, and an expected timeline. It also frequently flags major terms still to be negotiated — an earn-out, management rollover, or escrow holdbacks — so neither side wastes time if the gap is too wide.

The defining feature of an LOI is that it is mostly non-binding — the price and structure are subject to confirmatory diligence and the definitive agreement. However, certain clauses are deliberately made binding. The most important is the exclusivity (or 'no-shop') provision, which prevents the seller from negotiating with other buyers for a set window (commonly 30-90 days), giving the buyer protection to invest in diligence. Confidentiality, expense allocation, and sometimes a break-up fee are also binding. Misreading which parts bind a party is a frequent source of disputes.

The LOI is the inflection point where a deal becomes real. For the buyer, it locks the seller into exclusive negotiations and sets the price anchor before spending heavily on due diligence, legal, and accounting work. For the seller, signing an LOI signals commitment but sacrifices negotiating leverage — once exclusivity starts, competing bidders are shut out, and buyers sometimes use diligence findings to 're-trade' (renegotiate the price downward). Sellers therefore push to keep the exclusivity window short and the price terms as firm as possible.