The letter of intent (LOI) in a business acquisition
A letter of intent (LOI) is a document in which a buyer sets out the proposed price and main terms of an acquisition before the final purchase agreement, and it is usually non-binding except for provisions such as confidentiality and exclusivity.
Key takeaways
- The LOI fixes the headline deal terms so diligence and legal drafting can start.
- Most of it is non-binding; exclusivity and confidentiality usually are binding.
- A no-shop clause stops the seller negotiating with other buyers for a set period.
- Anything not agreed in the LOI is likely to be renegotiated later.
What an LOI usually contains
Typical terms are the purchase price and form of consideration, the structure (asset or stock purchase), how the purchase is financed, seller financing or earn-out terms, the due diligence period, conditions to closing and the expected timeline.
Binding and non-binding parts
The commercial terms are normally expressed as non-binding, since they depend on diligence. Confidentiality and the exclusivity period are normally binding. Have counsel confirm exactly which sections bind the parties.
Why exclusivity matters
Diligence is expensive, so buyers ask for a no-shop period during which the seller negotiates only with them. Sellers weigh the length of that period against the buyer's certainty of closing.
Frequently asked questions
Mostly no. The price and structure are usually non-binding, while confidentiality and exclusivity provisions are usually binding. The wording of the document controls, so have a lawyer review it.
It varies with deal size and complexity. Periods of roughly 30 to 90 days are common, often with an extension if diligence is progressing.
Last reviewed . General information, not legal, tax or financial advice.