Letter of intent review for business owners
A letter of intent can look preliminary while still changing leverage, access, timing, and the owner’s alternatives. Organize the economics and the process before exclusivity begins.
The short answer
Do not review an LOI as a price announcement. Review it as a map of the transaction the buyer wants to control. Some provisions may be described as nonbinding while exclusivity, confidentiality, access, expenses, governing law, or other provisions may be expressly binding.
Transaction counsel should identify what is binding, what is missing, what remains conditional, and what the owner may be giving up before the definitive agreement exists.
Separate cash at close, assumed or repaid debt, escrow, seller financing, earnout, rollover equity, purchase-price adjustments, and any value tied to continued employment. A similar headline price can create a materially different owner outcome.
Understand the length of any no-shop period, extension rights, milestones the buyer must meet, information the buyer must provide, and how the owner can terminate if financing, diligence, or documentation stalls.
Identify the proposed working-capital definition, target, measurement period, accounting consistency, cash and debt treatment, inventory rules, deferred revenue, and the mechanism for resolving a post-closing disagreement.
Employment, consulting, noncompetition, rollover, transition assistance, indemnification, representations, and personal guarantees can carry economic and personal consequences beyond the purchase price.
Clarify who the buyer is, who controls the investment decision, whether capital is committed, which lender or committee approvals remain, and what conditions allow the buyer to re-trade or walk away.
Asset versus equity structure, allocation, entity type, installment payments, rollover, earnout character, state sourcing, and the owner’s residence may change the modeled proceeds. Bring tax professionals in before the structure hardens.
Before your signature
Reconcile every component from headline value to expected cash at close and deferred or contingent value.
List financing, diligence, customer, regulatory, employment, working-capital, and documentation conditions that can still change the economics.
Compare likely proceeds with taxes, debt, spending, existing capital, family priorities, and the life the transaction must support.
Transaction counsel, tax professionals, and other specialists should review the provisions within their scope. One advisor should not impersonate the entire team.
A direct starting point
Use the guided journey to organize the questions—or tell us directly what is in front of you.