LOI

Full Definition

A Letter of Intent (LOI) is typically a 3–8 page document submitted by a potential acquirer to a seller expressing the buyer's intent to purchase the business at a specified price and on specified terms, subject to completion of due diligence and execution of a definitive agreement. While the substantive deal terms (price, structure, form of consideration) are non-binding, certain LOI provisions are explicitly binding: the exclusivity period (preventing the seller from negotiating with other buyers for 30-90 days), confidentiality obligations, and expense reimbursement in certain circumstances. The exclusivity provision is the most commercially significant binding element, as it gives the buyer negotiating leverage to conduct diligence without fear of a competing bidder. Key terms addressed in the LOI include: the purchase price or valuation range (expressed as an EV or as an EBITDA multiple applied to a defined EBITDA figure), the form of consideration (cash at close, earnouts, equity rollovers), the proposed acquisition structure (asset purchase versus stock purchase), key closing conditions (regulatory approvals, financing contingencies), and the proposed timeline to definitive agreement and closing. More detailed LOIs also address treatment of management equity, working capital target mechanics, and representations and warranty insurance requirements. Sellers in competitive auction processes often receive multiple LOIs from competing bidders and must select the buyer with whom to enter exclusivity—a consequential decision that considers not only stated price but financing certainty, diligence timeline, deal structure preferences, management team chemistry, and strategic fit with the buyer's portfolio or operations. Investment bankers managing sell-side processes advise sellers on which LOI terms create the highest probability of achieving a completed transaction at the intended economics, not merely the highest headline price.

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