What is in a letter of intent?
- The price and how it will be paid (cash at closing, earn-out, vendor financing)
- Whether it's a share purchase or an asset purchase
- How working capital will be measured at closing
- What the buyer still needs to check in due diligence
- Your role after the sale
- Exclusivity: how long you agree to stop talking to other buyers
- Confidentiality
Why is exclusivity so important?
Once you sign an LOI with exclusivity, you usually can't talk to other buyers for a set period. That's when your leverage drops. If the buyer finds a problem in due diligence and asks for a lower price, you no longer have other offers to fall back on.
Keep exclusivity periods short, and settle important terms in the LOI rather than leaving them for later.
What is an Expression of Interest?
An Expression of Interest (EOI) is an earlier, non-binding note in which a buyer outlines their view of price and terms. Collecting EOIs from several buyers before signing an LOI lets you compare options while competition is still alive.
Frequently asked questions
Is a letter of intent legally binding?
Most of a letter of intent is not binding, including the price. But some parts usually are, such as exclusivity, confidentiality and who pays which costs. Have your lawyer review an LOI before you sign it.
What is the difference between an EOI and an LOI?
An Expression of Interest is an early, non-binding outline of a buyer's price and terms, often collected from several buyers. A letter of intent is more detailed and usually includes exclusivity, meaning you stop talking to other buyers.
How long does exclusivity last in an LOI?
It varies by deal, often from 30 to 90 days or more. Shorter exclusivity protects the seller, because it limits how long the buyer can hold the deal while doing due diligence.
