LOI teardowns
The LOI sets the deal. Read it closely.
Sample clauses, redlined, with why each change matters.
Most of what decides a deal’s final value is agreed in the letter of intent, before lawyers draft the purchase agreement. Here is how common LOI terms move in a well-run negotiation.
- Sample redlines
- 6 clauses
- Sample redlines
- Highest before exclusivity
- Leverage
- Highest before exclusivity
- Fewer surprises later
- Clarity
- Fewer surprises later
LOI review
In review
- Headline price and formDone
- Exclusivity periodDone
- Working capital targetLive
- Earn-out termsNext
- Escrow and holdbackNext
- Diligence scopeNext
Every term agreed before exclusivity starts.
Why it matters
Your leverage peaks before you sign. Use it on the terms that move value.
Once an LOI is signed with exclusivity, other buyers step away and the seller’s negotiating position narrows. Getting the key commercial terms clear in the LOI keeps the purchase agreement close to what was agreed and protects the value of the offer.
- Headline price is only one part of value.
- Vague terms tend to be resolved in the buyer’s favour later.
- Short, defined exclusivity keeps momentum.
- Clear diligence scope keeps the timetable.
The redlines
Six sample clauses, before and after.
Sample wording based on common software M&A terms. Hover or tab to a term for a plain-English definition.
Clause 1Price and form of consideration
- The seller keeps surplus cash and pays off debt, so the price is for the business itself.
- What the buyer gives in return: cash, shares, deferred payments or a mix.
First draft
Purchaser will pay up to $40 million for the Company, subject to adjustments and diligence.Negotiated
Purchaser will pay $40 million on a cash-free, debt-free basis: $34 million in cash at closing and up to $6 million under the earn-out in Clause 4.
Why it matters“Up to” sets a ceiling, not a price. Naming the cash at closing and the basis makes the headline figure something a seller can rely on.
Clause 2Exclusivity
- A period when the seller agrees not to talk to other buyers.
First draft
The Company will negotiate exclusively with Purchaser until a definitive agreement is signed.Negotiated
The Company will negotiate exclusively with Purchaser for 45 days, extendable once by 15 days by mutual agreement, ending early if Purchaser proposes a lower price.
Why it mattersAn open-ended exclusivity period removes the competitive pressure that produced the offer. A defined window keeps both sides working to a date.
Clause 3Working capital
- Short-term assets minus short-term liabilities, such as receivables less payables and deferred revenue.
- Another name for the working capital target the closing figure is compared with.
First draft
The price will be adjusted for working capital at closing.Negotiated
The price will be adjusted for net working capital against a target equal to the trailing twelve-month monthly average, calculated on the basis set out in Schedule A.
Why it mattersThe target is where real value moves. Agreeing how it is calculated in the LOI avoids a late reduction dressed up as a technical adjustment.
Clause 4Earn-out
- Part of the price paid later if the business hits agreed targets.
- Annual recurring revenue: the yearly value of subscription contracts.
First draft
Up to $6 million will be payable based on the future performance of the business.Negotiated
Up to $6 million is payable in two equal annual instalments on annual recurring revenue targets set out in Schedule B, with the business run in the ordinary course and Purchaser not acting to frustrate the targets.
Why it mattersAn earn-out without a defined metric, period and operating protections is hard to collect. Specific targets make the deferred value real.
Clause 5Escrow and holdback
- Money held by a third party for an agreed period to cover possible claims after closing.
- Insurance that covers warranty claims, often reducing or replacing escrow.
First draft
A portion of the purchase price will be held in escrow as security for Purchaser.Negotiated
Ten per cent of the cash at closing will be held in escrow for 12 months as the sole recourse for general warranty claims, with an option to use warranty and indemnity insurance instead.
Why it mattersSize, duration and whether escrow is the only remedy shape how much of the price a seller actually receives, and when.
Clause 6Diligence scope and timetable
- Checking what the seller has already shared, rather than starting a broad new investigation.
First draft
Closing is subject to satisfactory completion of due diligence by Purchaser.Negotiated
Confirmatory diligence will cover the financial, legal, commercial and technical areas listed in Schedule C and complete within 30 days of data room access.
Why it matters“Satisfactory to Purchaser” lets a buyer reopen any term. A defined scope and timetable keeps diligence confirming the deal rather than renegotiating it.
Sample wording for discussion only. Acquiry does not give legal advice; your lawyers draft and advise on the LOI and purchase agreement. We coordinate the commercial negotiation with them.
The difference
A loose LOI or a tight one.
Both can carry the same headline price. Only one tends to close at it.
Loose
Tight
Price
Loose“Up to” a figure
TightCash at closing named, basis defined
Exclusivity
LooseOpen-ended
TightFixed days, clear end
Working capital
LooseAdjusted at closing
TightTarget and method agreed
Diligence
Loose“Satisfactory to Purchaser”
TightScope and timetable listed
How we help
From offer to a signed LOI.
We work alongside your lawyers and accountants on the commercial terms, so the offer you accept is the deal you close.
Get an LOI reviewed- 01
Read
Day 1 to 2
Review the offer against the market and your goals, and flag the terms that move value.
OutputTerm-by-term notes
- 02
Compare
Day 2 to 5
Where there are several offers, lay them side by side on cash at closing, deferred value and risk.
OutputOffer comparison
- 03
Negotiate
Week 1 to 2
Coordinate the commercial response with your counsel and keep competing buyers engaged.
OutputRevised LOI
- 04
Sign
When ready
Sign with a defined exclusivity window and a clear path to the purchase agreement.
OutputSigned LOI
Confidential by default
Your offer stays between you and us.
We review LOIs under NDA and never share terms with other buyers without your agreement.
Every Acquiry mandate runs under strict NDA.
Questions
What founders and boards ask us.
What is a letter of intent in M&A?
A short document setting out the main terms of a proposed deal, such as price, structure, exclusivity and timetable, signed before the full purchase agreement is drafted.
Is an LOI legally binding?
Usually most commercial terms are non-binding, while clauses such as exclusivity and confidentiality are binding. Your lawyers will confirm how a specific LOI is drafted.
Which LOI terms matter most for a seller?
Cash at closing, the working capital target, earn-out terms, escrow, exclusivity length and diligence scope. These usually move more value than the headline price.
How long should exclusivity last?
Commonly 30 to 60 days for a software deal, with a clear end date. The right length depends on how much diligence is still to do.
Is there an upfront fee for an LOI review?
No. We talk through your offer first, under NDA, before anything is agreed.
Get an LOI reviewed
Tell us about the offer.
Share a few details and we will reply directly, usually the same working day. Everything stays confidential.
- Strict NDA before we see any document.
- Works alongside your lawyers.
- No upfront fee.