A letter of intent records the principal terms on which a buyer intends to acquire a business. Most provisions are nonbinding, while confidentiality, exclusivity, expenses and access may be binding. The period after signing is where the buyer verifies the investment and the parties convert broad economics into enforceable agreements.
Exclusivity begins
The seller commonly agrees not to solicit or negotiate with other buyers for a defined period. This gives the selected buyer time to spend money on diligence, financing and documentation.
Exclusivity should have a clear duration and extension mechanics. The seller should avoid an open-ended process and monitor whether the buyer meets information, financing and drafting milestones.
Diligence expands
The buyer’s review may cover finance, tax, legal, customers, operations, technology, cybersecurity, employees, benefits, insurance, intellectual property, environmental matters and regulation.
Requests should be managed through a tracker and controlled data room. Assign internal owners and require consistent responses. Sensitive customer or competitive information may be staged or limited.
The seller should continue investigating its own disclosures. New issues should be escalated promptly.
Earnings are tested
The buyer may commission a quality-of-earnings review to analyze revenue, normalized EBITDA, working capital and trends. Lenders may conduct separate underwriting.
Management must reconcile reported financials, tax returns, bank activity and operating data. Add-backs are examined individually. A weak bridge from reported to adjusted earnings can change price or structure.
Financing moves toward commitment
If the acquisition uses debt, the buyer submits information to lenders, responds to underwriting and satisfies conditions. Sellers should understand the financing timeline and which approvals remain.
A financing indication is not the same as committed funds. The LOI should state whether financing is a condition and what evidence the buyer must provide.
The purchase agreement is negotiated
The definitive agreement covers far more than price. It addresses:
- Purchased assets or equity
- Assumed and excluded liabilities
- Representations and warranties
- Pre-closing covenants
- Closing conditions
- Indemnification
- Escrow or holdback
- Restrictive covenants
- Termination rights
- Post-closing adjustments
Disclosure schedules qualify representations by identifying contracts, disputes, customers, employees, intellectual property and exceptions. They require careful business and legal review.
Working capital is defined
Many transactions are priced on a cash-free, debt-free basis with normalized working capital delivered at closing. The parties must define included accounts, accounting principles, target methodology and post-closing true-up.
Small classification differences can have material economic effects. Use historical monthly balances and the company’s operating cycle, not just a single period.
Third-party consents are obtained
Contracts, leases, licenses, debt and permits may require consent or notice. Identify these before signing the LOI where possible. Customer consent requires a coordinated communication plan because confidentiality and relationship risk are involved.
The business must keep performing
Management distraction is one of the greatest post-LOI risks. Assign transaction responsibilities, protect the operating cadence and monitor the forecast closely.
If performance changes, communicate facts and mitigation rather than allowing the buyer to discover the issue late.
Closing is coordinated
The final stage includes agreement execution, funds flow, debt payoff, releases, equity issuance, employment or consulting documents, consents and transfer mechanics. A detailed closing checklist assigns every item.
Expect the negotiation to become more detailed, not less
As the transaction advances, broad agreement gives way to definitions. “Debt free” becomes a schedule of debt-like items. “Normal working capital” becomes account rules and a sample calculation. “Reasonable transition” becomes hours, duration and scope.
This is normal. The danger is allowing detail to change the original economics unnoticed. Maintain an issues list that states the dollar impact, business impact and relationship among terms. A larger escrow, broader indemnity and longer survival period may be three expressions of the same perceived risk.
The seller’s team should decide which issues require principal involvement and which advisors can resolve. Constant escalation exhausts the owner; too little escalation allows material value to move quietly.
The parties also prepare day-one communications, system access, banking, payroll and authority changes. Legal ownership can transfer in an instant; operations cannot.
Frequently asked questions
How long is the period between LOI and closing?
Often 60 to 120 days, although financing, regulation, deal size and diligence can change the timeline.
Can the buyer change the price after signing an LOI?
Because price terms are usually nonbinding, buyers may seek changes based on diligence, financing or performance. Strong preparation and specific LOI terms reduce retrading risk.
Should the seller stop talking to other buyers?
If the LOI contains binding exclusivity, yes within its terms. The seller should negotiate duration and obligations carefully before signing.
Is the deal guaranteed after an LOI?
No. A transaction can fail during diligence, financing, documentation or approvals.
Considering what comes next?
United Commerce Group understands that certainty and execution matter as much as initial interest. Owners considering a transaction can start a confidential conversation with an operator-led buyer.