A buyer submits a letter of intent (LOI), your broker calls it a major milestone, and excitement fills the room. It is a major milestone—but it is also one of the most misunderstood documents in any M&A transaction. Many sellers sign LOIs without fully understanding what they have agreed to, and by the time they realize it, they have given away significant leverage.
What an LOI Actually Is
An LOI is a preliminary agreement that outlines the major terms of a proposed transaction: purchase price, deal structure, payment terms, and a projected timeline. In most cases, the vast majority of the LOI’s terms are explicitly non-binding—meaning neither party is legally obligated to follow through on the deal as described. However, a handful of provisions in virtually every LOI are binding from the moment of signature, and those are the ones sellers often overlook.
The Binding Provisions That Matter
The two binding provisions that most directly affect sellers are the exclusivity clause (sometimes called a “no-shop” provision) and the confidentiality obligation. Exclusivity requires you to stop marketing your business and cease conversations with other potential buyers for a defined period—typically 60 to 90 days, though buyers routinely push for longer. During that window, your negotiating leverage drops significantly. If the buyer decides to walk away, re-price, or restructure the deal after weeks of due diligence, you have lost time and momentum with other interested parties.
The confidentiality provisions in an LOI typically supplement any standalone non-disclosure agreement already in place, and they may impose obligations that survive the termination of the deal. Understanding the scope of these provisions—and ensuring they are appropriately reciprocal—matters.
Price and Structure Are Negotiable at the LOI Stage
Many sellers assume that the purchase price stated in the LOI is the number they will receive at closing. That is not always the case. Buyers use the due diligence period to justify post-LOI price adjustments based on discoveries in your financial records, contracts, or operations. Purchase price adjustments for working capital, debt, and other items are standard, but sellers who did not negotiate protective language into the LOI—including a clear definition of working capital targets and caps on downward adjustments—often find the final purchase price meaningfully lower than the headline number.
What to Negotiate Before You Sign
At Beresford Booth, we help clients negotiate protective provisions at the LOI stage that are frequently overlooked. For example: a shorter exclusivity period with milestone-based extension rights, a clear break-up fee if the buyer walks without cause, specificity around the working capital target and adjustment mechanism, and/or a framework for how earnout provisions (if any) will be structured. These are conversations to have before you sign, not after.
The LOI sets the tone for everything that follows. Sellers who approach it casually often spend the remainder of the deal in a defensive posture. Sellers who approach it strategically—with counsel at their side—are far better positioned to reach a closing that reflects the true value of what they built.
The attorneys at Beresford Booth have decades of experience drafting operating agreements and helping both investors and sponsors avoid expensive litigation. Whether you are preparing to issue a capital call, responding to one, or already facing a dispute, we can help you evaluate your options and protect your interests. Contact Beresford Booth at info@beresfordlaw.com or by phone at (425) 776-4100.