State the Economics Clearly
Identify the proposed structure, headline price, payment at closing, seller note, contingent consideration, assumed liabilities, working-capital treatment, and any rollover. A single purchase-price number is not enough.
Include a plain-English sources-and-uses summary so both parties understand what the seller receives, what remains contingent, and what the buyer must fund.
Define the Diligence Process
List major diligence categories, information access, management meetings, site visits, and a realistic timeline. The buyer should preserve the right to revise or withdraw based on findings.
Make clear that financial, legal, tax, operational, commercial, technology, insurance, employee, and environmental review may apply depending on the business.
Handle Exclusivity Carefully
Exclusivity protects a buyer investing time and professional fees, but it should have a defined period and milestones. Sellers may request evidence that the buyer is progressing.
Confidentiality, exclusivity, access, expenses, governing law, and certain process provisions may be binding even when the main economic proposal is not. Label binding and nonbinding sections precisely with counsel.
Address Transition and Key Dependencies
Identify the expected seller transition, key employee retention, landlord or customer consents, financing, licensing, and other conditions that could determine whether the business transfers successfully.
An LOI is the right place to expose these dependencies. Discovering them only after drafting the purchase agreement wastes time and negotiating leverage.
Buyer Checklist
- Specify asset or equity structure
- Break down every component of consideration
- Define working-capital treatment
- List diligence access and timing
- Set an exclusivity period
- Identify binding provisions
- State transition expectations and closing conditions
Frequently Asked Questions
Is a letter of intent legally binding?
Many acquisition LOIs make the core purchase proposal nonbinding while treating confidentiality, exclusivity, access, expenses, and similar process terms as binding. Counsel should draft the distinction.
Should an LOI include working capital?
Yes. Leaving working capital undefined can create a major economic disagreement late in the process.
How detailed should the LOI be?
Detailed enough to resolve major economic and process issues, but not a substitute for diligence or the definitive purchase agreement.
This guide is educational and does not replace transaction-specific legal, tax, accounting, lending, insurance, or valuation advice from qualified professionals.