What is Letter of Intent (LOI)?
A non-binding term sheet for an acquisition - it lays out price, structure, and exclusivity before the binding purchase agreement is drafted.
A letter of intent is the acquisition equivalent of a fundraising term sheet. It names a headline price, the deal structure (asset vs. stock purchase), the rough escrow and earnout, and an exclusivity (no-shop) period during which you can't talk to other buyers. Most of an LOI is non-binding except exclusivity and confidentiality, which bind immediately. Why it matters to you: the LOI sets the gravity of the whole deal. Terms you concede here - earnout weighting, escrow size, who bears the working-capital risk - are very hard to claw back once you're in exclusivity and have lost your leverage. Negotiate the LOI as if it were the final deal.
Example
- An LOI offers $40M, structured as $30M cash at close, a $5M escrow held 18 months, and a $5M earnout tied to two years of revenue targets - with a 60-day exclusivity period.