In M&A, the letter of intent (LOI) is often underestimated by less experienced dealmakers. To some, it looks like a short bridge between preliminary talks and the heavy lifting of the definitive agreement. But to seasoned investors, corporate development teams, and sell-side advisors, the LOI is a strategic instrument. It sets the tone for the entire deal, defines leverage points, and can lock in advantages long before a single representation or warranty is drafted.

A well-structured LOI doesn’t just outline a price and terms. It signals seriousness, shapes the negotiation path, and gives both sides a framework for risk allocation. Buyers use it to secure exclusivity and position themselves advantageously before diligence reveals more. Sellers use it to preserve flexibility, test buyer credibility, and protect against downside while maintaining competitive tension.

Understanding the true purpose of the LOI—and how its clauses shape outcomes—can mean the difference between a smooth path to close and a negotiation that drags or unravels.

Letter of Intent Sample for M&A: Why It’s More Than Just a Formality

At its simplest, an LOI is a document that outlines the basic terms under which a buyer proposes to acquire a seller. It sets the price, structure, key conditions, and timing expectations. But calling it a “formality” misses the point.

For buyers, the LOI is a positioning tool. It allows them to secure exclusivity, limit competition, and establish baseline assumptions that will be tested in diligence. The way the price is expressed—enterprise value, equity value, multiples—creates anchor points for the negotiation.

For sellers, the LOI is a risk filter. It helps them assess which buyer has not just the price but the seriousness, financing capability, and strategic fit to move to definitive agreements. It also gives them leverage to shape deal protections, especially if multiple bidders are at the table.

In most competitive processes, the LOI arrives after initial management presentations and data room previews but before deep diligence. At this stage, buyers have seen enough to set indicative terms, but not enough to finalize every risk adjustment. This makes the LOI a snapshot of both price and trust—each side is deciding whether the other is credible enough to move forward.

In practice, sophisticated dealmakers approach the LOI as a mini-negotiation. They know certain provisions will be binding (like exclusivity or confidentiality), while others are non-binding but create psychological commitments. That’s why the LOI phase is not just a steppingstone. It’s a high-leverage moment in the deal timeline.

Key Clauses in a Letter of Intent Sample: What They Mean for Buyers and Sellers

While every LOI is customized to the transaction, most have a core set of clauses. Each of these carries strategic implications:

1. Purchase Price and Structure

The price in the LOI is typically expressed as either enterprise value or equity value, sometimes adjusted for cash, debt, and working capital. Buyers often specify whether the transaction is a cash deal, stock deal, or a mix. The LOI may also introduce the idea of earnouts or contingent payments. For sellers, locking down a strong headline price is important, but they also watch for signals of later retrade risk.

2. Form of Consideration

Whether the consideration is all cash, stock, or a combination has real implications for risk. Stock components shift some exposure to the buyer’s future performance. Cash offers clarity but may be harder to finance. Sellers often push for certainty unless they are strategically aligned with the buyer’s long-term upside.

3. Structure of the Transaction

Asset purchase or stock purchase? This impacts tax treatment, liability assumption, and regulatory requirements. Buyers often prefer asset deals to limit inherited liabilities. Sellers often push for stock deals to simplify closing and reduce tax drag.

4. Conditions to Closing

These include completion of due diligence, securing financing, regulatory approvals, and third-party consents. The more conditions listed, the more potential off-ramps the buyer has. Sellers watch these carefully to avoid open-ended deal risk.

5. Exclusivity (No-Shop Provisions)

Perhaps the most strategically important clause for the buyer. Exclusivity locks the seller into negotiating only with them for a set period—often 30 to 90 days—while diligence is completed. For sellers, agreeing to exclusivity too early or for too long can reduce competitive leverage.

6. Confidentiality

Often restated from earlier NDAs, this clause ensures that the existence and terms of the deal are not disclosed beyond agreed parties. It can also restrict the use of sensitive information if the deal does not close.

7. Break Fees or Expense Reimbursement

Less common in smaller deals but occasionally seen in competitive processes. These provisions compensate one party if the other walks away without cause. Break fees are more common in public company transactions.

8. Binding vs. Non-Binding Provisions

Most LOIs specify that price and key terms are non-binding, but certain provisions—like exclusivity, confidentiality, governing law—are binding. This distinction matters. Binding clauses create legal obligations even if the deal falls apart.

Each clause in a letter of intent sample is more than just legal text. It’s a positioning statement. Buyers draft to preserve flexibility while locking down the deal path. Sellers push to keep options open until definitive agreements are signed.

Negotiation Leverage Inside the Letter of Intent: How Terms Set the Tone for the Deal

The LOI is often where leverage is won or lost before the heavy documentation begins. Once a seller signs exclusivity, much of the competitive pressure disappears. That’s why experienced buyers push hard to shape LOI terms in their favor before diligence starts.

For buyers, leverage comes from clarity and readiness. If they can demonstrate financing certainty, strategic fit, and a clean path to regulatory approval, they’re in a stronger position to secure exclusivity and lock the seller into a framework that leaves room for diligence adjustments.

For sellers, leverage is in choice. A well-run auction process with multiple bidders allows them to compare LOIs and push buyers to compete on more than just price—shorter exclusivity, fewer conditions, or stronger protections. A seller who enters exclusivity too quickly without these considerations risks seeing their negotiating position weaken later.

The language in the LOI can also shape future conversations. For example:

• A buyer who specifies a purchase price “subject to customary adjustments” leaves room for downward movement if diligence reveals working capital or liability issues.
• A seller who includes clear definitions around “customary adjustments” can limit post-LOI price erosion.
• Timeframes in exclusivity clauses can set the pace. A 60-day exclusivity may benefit a well-organized buyer, but sellers may prefer shorter windows to maintain urgency.

The LOI also sets tone. If it’s overly one-sided, it can create mistrust that carries into the definitive agreement stage. A balanced LOI builds goodwill while still protecting each party’s position.

Common Pitfalls in a Letter of Intent Sample and How Experienced Dealmakers Avoid Them

Many first-time participants in M&A underestimate how much risk can be embedded in an LOI. While most provisions are non-binding, the psychological and practical commitments can still trap an unprepared party.

1. Overcommitting in Exclusivity

Sellers sometimes agree to long exclusivity periods without performance milestones for the buyer. If the buyer moves slowly or uses exclusivity to shop for financing, the seller’s deal momentum and leverage can erode. Experienced sellers link exclusivity to progress—shorter periods that renew only if diligence is on track.

2. Leaving Price Language Too Open

If the price is described as “indicative” without parameters, buyers have more room to renegotiate after diligence. Seasoned sellers work to define what circumstances justify adjustments, protecting against unnecessary retrading.

3. Ignoring the Impact of Transaction Structure

Tax treatment, liability assumptions, and closing complexity all flow from whether the deal is structured as an asset or stock purchase. Sellers who agree to an asset deal without understanding tax implications can lose significant value post-close.

4. Not Addressing Key Conditions

Conditions to closing are sometimes written broadly, giving buyers wide discretion to exit. Sellers should push for clarity on what constitutes a material adverse change or specific regulatory conditions, narrowing the exit paths.

5. Misjudging Binding Provisions

Binding exclusivity or confidentiality provisions can create legal exposure even if the deal fails. Both sides need to understand what commitments survive a broken deal.

The experienced approach is to treat the LOI like a term sheet for negotiation leverage—not just a placeholder for the definitive agreement. Every word matters because it frames the expectations of both sides.

Lessons from Real LOIs: How Dealmakers Use the Document to Shape Outcomes Before the SPA

In competitive transactions, the LOI can be used as a tactical weapon.

Large strategic acquirers often craft LOIs that emphasize speed and certainty. By presenting fewer conditions, shorter exclusivity, and clear financing, they can edge out private equity buyers who require more diligence time. In one mid-market software deal, the winning acquirer’s LOI offered slightly less price but committed to signing the SPA within 30 days. The seller valued certainty and moved forward.

Private equity firms sometimes use LOIs to create price flexibility. In a healthcare services transaction, a PE buyer submitted an LOI at an aggressive headline valuation but with detailed working capital targets and earnout conditions. Post-diligence, these gave room to adjust terms without appearing to renegotiate the headline price.

In family-owned businesses, LOIs sometimes serve as trust-building tools. Rather than loading the LOI with technical language, experienced buyers present a clear summary of value, post-close plans, and cultural fit. This helps keep negotiations constructive before legal teams become heavily involved.

Across these examples, the common thread is intent. The LOI is never just a template. It’s a positioning document. The side that treats it as a real negotiation tool often shapes the deal to their advantage long before the definitive agreement is drafted.

A letter of intent in M&A is more than a simple marker of interest. It’s an early-stage negotiation platform, a strategic positioning tool, and a filter for credibility. The right LOI locks in exclusivity, defines key terms, and signals how the deal will proceed. The wrong LOI can erode leverage, open room for retrading, or create mistrust that makes the rest of the process harder. For both buyers and sellers, the skill is in treating the LOI as a serious strategic moment. Price, structure, conditions, and binding provisions are not just placeholders—they’re leverage points. And the dealmakers who understand how to balance flexibility with protection at this stage are often the ones still in control when the SPA is finally signed.