Business Acquisitions: Letter of Intent

Business Acquisitions: Letter of Intent

A Letter of Intent (LOI) is a key milestone in any acquisition. Acting as an initial agreement between buyer and seller, it defines the basic terms of the transaction before due diligence and final agreements are completed. By setting expectations early, the LOI provides a clear framework for the process and builds a foundation of trust between the parties.

Negotiation and signing

Negotiating an LOI can be an intense process involving compromises on both sides. The objective is to ensure that both buyer and seller are comfortable with the agreed principles, thereby increasing the likelihood of completing the deal. Once signed, the LOI signals serious intent and commitment, paving the way for due diligence and detailed negotiations.

What should an LOI include?

Key terms
Outline the principal conditions of the acquisition — such as valuation, purchase price structure, and ownership stake. This is often the most detailed part of the LOI and serves as the basis for definitive agreements.

Due diligence
Define the scope and timeline of the due diligence review, including which areas will be examined (financial, legal, operational, etc.).

Exclusivity
In many cases, the seller grants the buyer a period of exclusivity, meaning the seller will not negotiate with other parties during this time. This allows the buyer to complete due diligence and negotiate final terms without outside competition.

Seller’s future role
Clarify the seller’s expected involvement after the transaction, such as continued management, an advisory role, or other commitments.

Integration planning
Sometimes the LOI outlines a high-level integration plan, describing how the target will be combined with the buyer’s existing business. This may cover IT systems, culture, HR, or organizational changes.

Confidentiality and termination
Include confidentiality clauses to protect sensitive information, as well as terms for terminating the LOI if final agreements cannot be reached.

Timeline
Establish deadlines for due diligence, negotiation of definitive agreements, and closing.

Conclusion

The LOI is a central part of the acquisition process. By defining the key terms early, it helps avoid misunderstandings, structures the process, and reduces risk for both parties. Investing time and effort at this stage creates clarity and increases the likelihood of a successful outcome.

At FLB Partners, we support clients through every stage of the M&A process — from strategy and indicative bids to due diligence and closing. Contact us today to learn how we can help your company navigate acquisitions with confidence.