The Deal That Died in the LOI

Most people think a Letter of Intent is a formality. A handshake in document form. Non-binding language wrapped around a few key terms, signed quickly so the real work can begin.

That belief has cost sellers a lot of money. And in the deal I want to tell you about, it effectively ended the transaction before diligence even started.

What an LOI actually is

A Letter of Intent is non-binding on the main economic terms. Price, structure, working capital target. Those are understood to be subject to diligence and further negotiation.

But an LOI contains several provisions that are binding. The most important are the exclusivity clause, the confidentiality provisions, and sometimes the no-shop and break-up fee language. These are legally enforceable from the moment both parties sign.

The problem is that sellers often skim the binding provisions and focus on the headline price. That is the number they have been waiting to see. Everything else feels like boilerplate.

It is not boilerplate.

What happened

The deal I analyzed involved a seller who had received an LOI with an exclusivity period of one hundred and twenty days. That is four months during which the seller could not market the business, could not take meetings with other buyers, and could not accept a competing offer even if one materialized.

The buyer used that period strategically. They moved slowly through the first sixty days of diligence, asking questions, requesting documents, and building a picture of the business. In month three, they came back with a revised price that was meaningfully lower than the LOI, citing diligence findings they claimed changed the risk profile.

The seller had no leverage. They had no competing buyer. They had spent four months in exclusivity, and the exclusivity period still had time left on it. Their options were to accept the retrade, walk away from the deal entirely, or try to negotiate from a position of zero leverage.

They accepted a lower price. The deal closed, but not at the number they thought they had signed up for.

What the seller missed

Three things in the LOI should have been negotiated before signing.

• The exclusivity period was too long. One hundred and twenty days is excessive for a business of this size. Sixty days is standard. Ninety is pushing it. Anything beyond ninety should require a specific justification, and the seller should push back hard.
• There was no break-up fee provision. A break-up fee protects the seller if the buyer walks without cause after exclusivity has been granted. Without it, the buyer can use the exclusivity period to tie up the deal, then exit cleanly with no cost. The seller has lost months of market time and has nothing to show for it.
• The retrade protections were nonexistent. A well-drafted LOI includes language around what constitutes a material adverse change sufficient to justify a price adjustment. Without defined parameters, the buyer can cite almost any diligence finding as justification for coming back with a lower number.

LOIs are negotiable

This is the part most sellers do not know. The LOI is a negotiated document, not a take-it-or-leave-it offer from the buyer. Every term in it is fair game before you sign.

Shorten the exclusivity period. Add a break-up fee. Define what qualifies as a material adverse change. Include a provision requiring the buyer to operate in good faith and move diligence forward on a reasonable timeline.

None of these asks will kill a deal with a serious buyer. A serious buyer who wants to close is not going to walk because you asked for a sixty-day exclusivity window instead of a hundred and twenty. If they do walk, you have learned something important about how they intend to conduct themselves throughout the process.

When clients hire me to walk alongside a deal, LOI review is one of the first places we spend real time. The headline price is what gets the seller excited. The LOI terms are what determine how the rest of the process plays out. Read them carefully. Negotiate them deliberately. The deal that dies in the LOI is almost always the deal where the seller did not.

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If you didn’t know, now you know.

* Every deal I look at is under NDA. The stories I discuss are real. Some identifying details — company name, specific geography, exact numbers — may have been changed to protect the seller. The lessons haven’t.