You signed an LOI. Now you want out. The answer depends on what you agreed to-and how you handle the exit.
Usually yes-with conditions. Most LOI provisions are non-binding, meaning you can walk away without completing the acquisition. However, certain provisions (exclusivity, confidentiality, expense reimbursement) are typically binding and enforceable. You must honor those obligations even if you don't close the deal.
Considering walking away from an LOI?
Get your LOI reviewed to understand your obligations before making a move. Should you have signed in the first place?
Why "Non-Binding" Doesn't Mean "No Consequences"
Purchase price, structure, closing conditions-you can walk away from these
Exclusivity, confidentiality, expenses-you MUST honor these even if you walk
Reputation, relationships, wasted time and money-real even without legal liability
Even if you CAN legally walk away, the deal community is small. Brokers talk. Sellers talk. Developing a reputation for "re-trading" or walking from signed LOIs makes future acquisitions harder. Only back out when you have legitimate reasons-and communicate professionally.
Which LOI Provisions Are Binding?
If you're the buyer, you cannot pursue the seller during the exclusivity period. If you're the seller, you cannot shop the deal or negotiate with other buyers.
What Happens If You Violate:
The other party can sue for breach of contract. Damages typically include their out-of-pocket costs (legal fees, due diligence expenses). In some cases, courts have awarded lost profits or specific performance.
You must keep confidential information confidential-even if you walk away. This obligation typically survives for 1-3 years after the LOI terminates.
Critical Point:
Even if you back out, you cannot use confidential information you learned to compete with the seller or share it with others. Violating this can result in significant damages and injunctive relief.
Some LOIs include provisions requiring one party to reimburse the other's expenses or pay a break fee if they walk. Not all LOIs have these, but if yours does, it's binding.
Common Structures:
Buyer break fee: 1-3% of deal value. Seller reimburses buyer's expenses: $50K-$150K cap typical. Check your LOI carefully-this is often buried in "miscellaneous" provisions.
When It's OK to Walk Away
What Can Happen If You Walk Away
If you violate exclusivity, confidentiality, or expense reimbursement terms, you can be sued for breach of contract. Damages include out-of-pocket costs (legal fees, advisor fees, due diligence costs) and potentially consequential damages.
Even without a binding agreement, if the other party reasonably relied on your promises and incurred costs, they may have a promissory estoppel claim. Courts sometimes enforce "non-binding" LOIs when one party induced reliance.
Some courts have found an implied duty to negotiate in good faith once an LOI is signed. If you negotiated in bad faith (never intended to close, used process to extract information), you could be liable even if the LOI says "non-binding."
The M&A community is small. Brokers, attorneys, and sellers talk. Walking from deals without good reason-or walking unprofessionally-will make future acquisitions harder. Your reputation is an asset.
You won't recover your own due diligence costs, legal fees, or management time. On a mid-market deal, this can be $50K-$200K+ lost. Factor this into your decision.
How to Back Out of an LOI Professionally
Identify all binding provisions. Check for: exclusivity period (when does it end?), expense reimbursement obligations, break fees, and confidentiality survival period.
Create a written record of the legitimate business reasons for withdrawing. Due diligence findings, material misrepresentations, financing issues-document everything.
Don't string the other party along. Once you've decided to withdraw, communicate immediately. Delay makes everything worse.
Provide written termination notice to all parties. Reference the LOI, state that you are terminating negotiations, and acknowledge your continuing obligations (confidentiality, etc.).
Pay any required expense reimbursements. Return all confidential materials. Honor confidentiality going forward. Don't give them grounds to sue.
A phone call before the letter is courteous. Explain your reasons honestly. Thank them for their time. Leave the door open for future opportunities. The deal may not work now, but circumstances change.
LOI Termination Notice
[Date]
[Seller Name]
[Address]
Re: Termination of Letter of Intent dated [LOI Date] - [Target Company]
Dear [Seller]:
We are writing to formally notify you that [Buyer Name] has decided not to proceed with the proposed acquisition of [Target Company] as contemplated in the Letter of Intent dated [Date] (the "LOI").
This decision is based on [state general reason without being disparaging-e.g., "findings during our due diligence review" or "our inability to secure financing on acceptable terms" or "our determination that the transaction no longer aligns with our strategic priorities"].
We acknowledge our continuing obligations under Sections [X, Y, Z] of the LOI, including our confidentiality obligations, which shall survive this termination in accordance with their terms. We will promptly return or destroy all confidential materials provided to us.
[If applicable: In accordance with Section [X] of the LOI, enclosed please find our check in the amount of $[___] representing expense reimbursement.]
We appreciate the time and effort you invested in this process and wish you success with [Target Company].
Sincerely,
[Buyer Name]
By: _______________________
Name: [Name]
Title: [Title]
Whether you're trying to exit an LOI or dealing with a counterparty who wants out, we can help you understand your rights and obligations.
Acquisition Stars • acquisitionstars.com • alex@acquisitionstars.com