The Anatomy of an LOI: What Every Buyer and Seller Should Know

In mergers and acquisitions, the Letter of Intent (LOI) is a pivotal document. For sellers, it signals serious buyer interest. For buyers, it's the first step in winning trust and setting the tone for negotiations. While typically non-binding, the LOI outlines key deal terms and expectations that guide the process toward a successful closing. 

Here’s what both parties need to understand about the anatomy of an LOI and how to get it right. 

Purchase Price & Deal Structure 

Buyers should clearly define: 

• Total purchase price 

• Payment structure (e.g., cash, seller note, earn-out) 

• Stock vs. asset purchase 

• Any adjustments (e.g., working capital) 

Sellers should look beyond headline numbers and evaluate: 

• Certainty of proceeds (cash vs. contingent) 

• Timing of payments 

• Tax implications of deal structure 

Timeline & Key Milestones 

Both parties benefit from clarity around: 

• Due diligence period 

• Drafting and negotiation window 

• Target closing date 

A defined timeline keeps momentum and sets realistic expectations. 

Due Diligence Scope 

Buyers should outline what they intend to review (financials, operations, legal, HR). 

Sellers should prepare organized materials and ensure an NDA is signed before sharing sensitive information. 

Transparency and preparedness on both sides speed up the process and reduce deal fatigue. 

Exclusivity (No-Shop Clause) 

This is often one of the only binding provisions in an LOI. 

• Buyers request it to justify their time and expense in due diligence. 

• Sellers should agree only when terms are reasonable, and the buyer appears credible. 

Standard exclusivity lasts 30–60 days. Longer periods should come with clear justification. 

Contingencies & Conditions 

Typical contingencies include: 

• Satisfactory due diligence 

• Financing approval 

• Regulatory clearance 

• Key employee retention 

Buyers should be transparent about these early. Sellers should evaluate how realistic and risky the conditions are. 

Financing Details 

Buyers should disclose how the deal will be funded (cash, debt, investors). Sellers should request proof of funds or lending relationships to ensure deal certainty. 

Management & Employee Intentions 

Will current leadership be retained? How will employees be treated? This section matters greatly to sellers who care about legacy and continuity. 

Binding vs. Non-Binding Clauses 

Most of the LOI is non-binding, but common binding clauses include: 

• Exclusivity 

• Confidentiality 

• Expenses 

• Governing law 

Tip: Both parties should have legal counsel review the LOI to avoid misunderstandings. 

Professionalism & Presentation 

Buyers: A clear, professional LOI shows you're prepared, serious, and capable. Include a short summary of your background and past transactions. 

Sellers: Assess not just the offer, but the professionalism behind it, how a buyer communicates is often a preview of how they’ll operate post-close. 

An LOI isn’t just paperwork it’s the framework for your deal. For buyers, it’s a chance to make a confident first impression. For sellers, it’s a signal that it’s time to get serious. 

Both sides should treat the LOI with the same care as the final agreement. A thoughtful, transparent LOI paves the way for a smoother due diligence process, clearer negotiations, and ultimately, a successful transaction.