You've built something valuable. Now someone wants to buy it. The LOI sets the terms-make sure they work for you.
As a seller, the LOI is your last chance to negotiate from strength. Once you sign and grant exclusivity, you lose leverage-the buyer knows you're committed. Every term you don't nail in the LOI becomes harder to win in the definitive agreement. Fight hard now, or pay for it later.
The 5 Things Sellers Must Get Right in the LOI
Specific number, not a range. Clear on cash vs other consideration.
As short as possible. 30-45 days, not 90.
Few conditions. Financing committed. No "outs."
Specific dates for DD, signing, closing.
Reasonable indemnity caps, baskets, survival.
How to Evaluate an LOI
Questions to Ask:
Calculate Your Net Proceeds:
Headline price: $10M
- Debt payoff: ($2M)
- Working capital adj: ($300K)
- Escrow holdback: ($1M)
- Seller note: ($1.5M)
= Cash at close: $5.2M
Always model your actual cash at closing.
Verify:
Warning Signs:
More conditions = less certainty. Every condition is an opportunity for the buyer to re-trade or walk.
High Certainty
Medium Certainty
Low Certainty
Key Terms to Negotiate as a Seller
Buyers want 60-90 days. You want 30-45 days. Every extra day is a day you can't talk to other buyers.
Seller Tactics:
Sample Language:
"Exclusivity Period: 45 days from LOI execution. Buyer may extend for one additional 15-day period by depositing $50,000 non-refundable into escrow. Exclusivity shall automatically terminate if Buyer fails to provide initial draft of Purchase Agreement within 21 days."
The LOI sets the framework that the purchase agreement will follow. Negotiate caps, baskets, and survival periods NOW.
Buyer-Friendly (Avoid):
Seller-Friendly (Target):
Push for maximum cash at closing. Every dollar in seller notes or earnouts is at risk.
Risk Spectrum:
If Accepting Seller Note:
If Accepting Earnout:
If buyer walks for non-DD reasons, you've lost time and momentum. A break fee compensates you for that loss.
Sample Language:
"If Buyer terminates this Agreement or fails to close for any reason other than (i) Seller's material breach, (ii) failure of a Closing Condition, or (iii) a Material Adverse Change, Buyer shall pay Seller a break fee of $[X] (representing 2% of the Purchase Price) as liquidated damages."
LOI Red Flags for Sellers
If the LOI says "$8-10 million," expect $8 million-or lower. Serious buyers give specific numbers. Ranges are either uncertainty or intentional anchoring. Push for a firm number before signing.
If buyer needs financing but doesn't have a commitment letter, you're taking all the risk. They can walk anytime claiming "financing didn't work out." Require proof of financing capability before exclusivity.
90+ days of exclusivity is excessive. Experienced buyers close in 60-75 days. Long exclusivity requests suggest either inexperience or intent to re-trade after you've lost leverage and momentum.
If 30%+ of the price is earnout, you're financing the buyer's risk. Earnouts create disputes, require you to trust new ownership, and often don't pay out. Push for more cash at close, less contingent consideration.
"Satisfactory due diligence" is too vague. It gives buyer a blank check to walk. Define what DD covers and what findings would justify termination. Objective criteria protect you from pretextual exits.
If buyer resists specifying indemnification caps, escrow terms, or rep/warranty scope in the LOI, they're planning to negotiate those in their favor later-when you have less leverage. Pin down the framework now.
Common Seller Mistakes
Competition creates value. Even if you have a preferred buyer, running a process (or appearing to) improves your terms. Multiple LOIs give you negotiating leverage.
A deposit-even a modest one with the LOI-signals buyer seriousness. Buyers who won't put money at risk often don't close. Ask for 1-2% as good faith deposit.
LOIs set the framework for the entire deal. Terms established here become your negotiating floor. Have experienced M&A counsel review before signing-the cost is trivial compared to the deal value.
Employment agreements, non-competes, transition services, earnout involvement-these affect your life after close. Negotiate these in the LOI, not as an afterthought.
Emotional attachment to a buyer weakens your position. Even if they're the "perfect fit," negotiate as if you have alternatives. Your attachment is leverage for them.
Seller's LOI Checklist
Seller-side LOI review protects your interests before you grant exclusivity. Our M&A attorneys identify terms that could cost you at closing.
Request Seller-Side LOI Review →You've built something valuable. Don't leave money on the table or accept unfavorable terms. Let us review your LOI before you sign.
Acquisition Stars • acquisitionstars.com • alex@acquisitionstars.com