deal-structures
A letter of intent is a pre-definitive document that records price, structure and process for a proposed transaction. Most commercial terms are non-binding; exclusivity, confidentiality and governing law are often binding.
A letter of intent sits after teaser and NDA, and before full due diligence and the SPA. It tells both sides they are working on the same deal: headline price or valuation range, cash versus shares, earnout sketch, locked box versus completion accounts, timeline, and who pays which costs.
International M&A practice, including IBA committee materials, treats the LOI as a way to lock process while leaving the definitive agreement to counsel. The LOI abbreviation page covers how bankers use the word day to day.
Courts and practitioners look at language, not the title. Typical split:
| Usually non-binding | Often binding |
|---|---|
| Price, structure, “best efforts” | Confidentiality (if not already in the NDA) |
| Conditions to closing | Exclusivity / no-shop |
| Financing outs | Governing law, costs, break fee if expressly stated |
If you want it non-binding, say so plainly. If you want exclusivity, say so plainly and date it.
A buyer issues an LOI at €28m cash-free/debt-free, 90-day exclusivity, vendor QoE to be updated, and a €2m earnout on 2027 EBITDA. The seller counters on exclusivity (45 days) and requires a reverse break fee if the buyer’s funds fail. None of this transfers the shares. It does decide who is in the data room next Monday.
Buyers want exclusivity so they do not fund diligence for an auction. Sellers want a credible price and a short exclusivity so a failed buyer cannot freeze the process. Both should treat the LOI as the first place working capital adjustment philosophy shows up.
Signing an LOI that accidentally creates an obligation to transact. Leaving the price “subject to diligence” with no mechanism. Forgetting that a public-company LOI can be a disclosure event. Using an LOI where a term sheet is the market custom (venture rounds).
An LOI will not fix a broken cap table or a missing customer consent. It is also not a substitute for representations and warranties.
The LOI should be consistent with the valuation object you already believe — not a new number invented to win exclusivity. When financials are structured, the letter can cite a deal-basis earnings figure instead of a slogan.