Letters of Intent in M&A: What Founders Sign Away Before They Realize It

The letter of intent is the first real document in most M&A transactions, and it is also the document founders sign with the least scrutiny. The price is exciting, the timeline feels manageable, and the LOI is described — usually by the buyer’s team — as a ‘non-binding term sheet.’ That description is true, but it is also incomplete in a way that costs sellers leverage every single week.

After nearly thirty years working with founders on the sell side of transactions, I can say with confidence that the LOI is where most of the deal’s outcome is actually decided. Not the financial outcome — that gets re-litigated through diligence and the purchase agreement. The structural outcome. The pace, the pressure, the alternatives, the rules of the road. By the time the definitive agreement is being drafted, the seller is operating inside the frame the LOI created.

What is actually binding in a ‘non-binding’ LOI

Almost every letter of intent has a section near the end that says, in some form, ‘the parties acknowledge that this letter is non-binding except for the following provisions.’ Then it lists them. Read that list carefully. It usually includes:

• Exclusivity (the no-shop) — the seller agrees not to talk to other buyers for a defined period.
• Confidentiality — both sides agree to keep the discussions and information shared confidential.
• Expense allocation — who pays for what if the deal does not close.
• Choice of law and forum — which state’s law governs and where any dispute would be resolved.
• Sometimes a breakup fee or expense reimbursement if the seller walks away.

Each of these is legally enforceable. The price, the structure, the closing conditions, the indemnification framework — those remain subject to negotiation. But the rules under which that negotiation will happen are locked in the moment the LOI is signed.

Exclusivity is the single most important term in the LOI

If you take only one thing from this article, take this: the exclusivity period is where the seller’s leverage lives or dies. The day before you sign the LOI, you have every potential buyer in the market available to you. The day after, you have one. For the length of the exclusivity period, the buyer knows they are the only conversation in the room — and they price that knowledge into every move they make from that point forward.

Buyers ask for ninety days, sometimes more. Sellers should push for thirty to sixty, with clear automatic extensions only if specific milestones (diligence completion, financing commitment) have been hit. Build in a hard end date. If the buyer cannot get to a signed definitive agreement within the exclusivity window, exclusivity should end and the seller should be free to pursue alternatives — or at least to use the credible threat of doing so to move things along.

Re-trading after diligence: the move every buyer makes

There is a pattern in M&A that founders should understand before they ever see an LOI. The buyer offers a strong headline price. The seller signs the LOI. Diligence begins. Two-thirds of the way through diligence, the buyer comes back with concerns — customer concentration, a weaker month, a working capital question, an unrelated legal issue. The price gets adjusted downward. The seller, now sixty days into exclusivity with no alternatives in the room, has to decide whether to accept the lower number or walk away from a deal they have invested heavily in.

This is not always bad-faith behavior — sometimes diligence genuinely surfaces issues. But it is also a well-known tactic, and the structure of the LOI is what makes it work. The protection against this is to negotiate, at the LOI stage, what kinds of findings can support a price adjustment and what kinds cannot. Material adverse changes that were undisclosed? Fair game. Things the buyer could have learned from public information or from their initial conversations? Off limits. Get this in writing before you sign.

The price in the LOI is the price you might get. The terms in the LOI are the terms you will live with.

What sellers actually have leverage to negotiate at the LOI stage

Before the LOI is signed, the seller has more leverage than at any other point until closing. Use it. The items most worth negotiating up front are:

The length and scope of exclusivity

Push for sixty days maximum. If the buyer needs more time, build it in as a conditional extension tied to specific buyer obligations being met. Make the no-shop apply only to the operating business — not to passive investment activity, ordinary course financing discussions, or unrelated personal transactions.

The treatment of working capital

Working capital adjustments are a quiet way that real money moves at closing. Get the methodology — and ideally a target number — into the LOI rather than leaving it to be ‘determined consistent with past practice.’ Past practice is rarely a number both sides agree on.

The escrow and indemnification framework

How much is going into escrow, for how long, and against what kinds of claims should be sketched at the LOI stage. The specifics will be negotiated in the purchase agreement, but the framework — typically expressed as a percentage of purchase price held for twelve to eighteen months — should be agreed in principle before exclusivity attaches.

The conditions to closing

What does the buyer have to do to actually close? Get financing? Obtain board approval? Complete a separate transaction? Each of those is an out for the buyer that the seller is not getting paid for. Identify them and decide which ones are acceptable.

The mindset shift

The biggest mistake I see founders make at the LOI stage is treating the document as a celebration. They have a buyer, they have a price, and the document feels like the finish line. It is not. It is the starting line, and it is also the moment when the seller’s negotiating position is at its strongest — because the buyer has decided they want the deal and has not yet locked the seller into exclusivity.

Spend a week on the LOI before signing it. Read the binding sections out loud. Ask yourself what happens to your leverage the day after you sign, and negotiate the terms you would want if the deal does not progress as expected. The buyer expects this. They are doing the same exercise on their side. A founder who treats the LOI as a serious legal document, not just a step toward closing, ends up in a different deal than a founder who treats it as a formality.

Frequently Asked Questions

Is a letter of intent in an M&A deal legally binding?

Most of a letter of intent is non-binding — including the purchase price and deal structure. But several specific provisions almost always are binding: the exclusivity or no-shop clause, confidentiality, expense allocation, and the choice of governing law. Treat the binding sections with the same care you would the definitive agreement.

How long should an exclusivity period in an LOI be?

Thirty to sixty days is typical, with sixty to ninety days for more complex transactions. The right answer depends on how much diligence the buyer needs and how prepared the seller is. Anything longer than ninety days starts to materially erode the seller’s leverage.

Can a seller walk away after signing a letter of intent?

Yes, in the sense that the price and structure are usually non-binding. But the seller is bound by exclusivity for the term of the LOI, meaning they cannot negotiate with other buyers during that window. Walking away ends the deal but does not free the seller to immediately pursue alternatives.

What should a seller negotiate before signing an LOI?

Price and structure get the attention, but the highest-leverage items at LOI stage are the length of exclusivity, the scope of the no-shop, the conditions under which the buyer can adjust the price after diligence, and any breakup or expense reimbursement provisions. These set the rules for the next sixty to ninety days.

About the Author

Scott Levine is the Founder and Managing Partner of AEGIS Law, a national law firm built on a fundamentally different model: lawyers focus exclusively on practicing law while a dedicated management team runs the business. Scott has spent nearly thirty years guiding entrepreneurs, founders, and closely held companies through mergers, acquisitions, growth transactions, and exits. He works alongside the firm’s M&A team — including Rochelle Walk, Robert Gold, and others — across AEGIS offices in St. Louis, Chicago, Denver, Tampa Bay, and Southern Illinois. He can be reached through aegislaw.com.