How to Write a Strong M&A Letter of Intent (LOI) That Reduces Revisions and Builds Deal Confidence
- Dr Allen Nazeri DDS MBA
- May 18
- 5 min read
Why the M&A Letter of Intent (LOI) Is More Than Just a “Formality”
The M&A Letter of Intent (LOI) is often treated like a placeholder—a loose, non-binding “agreement” designed just to buy time while both sides kick the tires. But smart buyers know better.
An LOI sets the tone for the deal, frames the key business terms, and provides the structure both parties will follow as they move toward a definitive agreement. Get it right, and you build momentum. Get it wrong, and you risk endless renegotiations, deal fatigue, or worse—watching your deal collapse after weeks or months of wasted effort.
If you’re a buyer, Writing a Strong LOI is your chance to:
Demonstrate professionalism.
Build seller confidence.
Reduce costly surprises later.
Avoid wasting your own time and resources on deals that were never aligned to begin with.
Key Components of an LOI That Buyers Should Never Skip
1. Transaction Structure and Purchase Price
First, be clear and unambiguous about what you are buying and how much you are offering.
Is it a stock purchase, asset purchase, or merger?
Are you buying 100% or leaving some ownership with the seller?
Is the purchase price fixed, or will it adjust based on working capital or earnouts?
Example:“Buyer proposes to acquire 100% of the outstanding shares of XYZ Company for $12,000,000, subject to customary adjustments for working capital, debt, and cash.”
Vague or overly general pricing language signals to the seller that you’re not fully committed or haven’t done your homework.
2. Clear Definition of Adjusted EBITDA and Addbacks
One of the biggest deal killers is misalignment on EBITDA.
What you consider EBITDA may not match what the seller or their broker claims. Clarify exactly how you calculate it and what add-backs you consider legitimate.
Example:“EBITDA is defined as net income before interest, taxes, depreciation, and amortization, adjusted for non-recurring legal fees, owner compensation exceeding market rates, personal travel expenses, and non-operational costs such as donations or sponsorships.”
Make sure you list out your assumptions, so the seller knows you’re not negotiating in bad faith later.
3. Payment Terms, Structure, and Timing
Money matters—but how and when it’s paid matters just as much.
Is it all cash at close?
Is part of it held back as a seller note or contingent on future performance?
Will there be an earnout based on EBITDA or revenue targets?
Example:“$9,000,000 payable at closing, $1,500,000 in a 24-month seller note at 6% interest, and $1,500,000 contingent upon achieving $5M EBITDA in the first post-closing year.”
Detailing timing and milestones avoids misunderstandings and sets realistic seller expectations.
4. Exclusivity Period (No-Shop Clause) with Buyer Accountability
Many buyers include a No-Shop Clause, asking the seller to pause all other discussions. This is reasonable—but it comes with responsibility on your part.
What to Include in a Strong Exclusivity Clause:
Defined Exclusivity PeriodBe specific. Example:“Seller agrees to an exclusive period of 60 days from the date of LOI execution.”
Buyer Milestones and AccountabilitySellers deserve to know that you’re not using this period to stall.Include commitments such as:
Engaging a Quality of Earnings (QoE) firm within 5 business days.
Providing the first draft of the Purchase Agreement (PSA) within 21 days.
Completing preliminary legal and financial diligence within 45 days.
Example:“Buyer will engage a QoE firm within 5 business days of LOI execution and provide the first draft of the Purchase Agreement within 21 calendar days.”
Reciprocal Commitment from the BuyerYou expect the seller to stop "flirting" with other buyers—you should do the same.Example:“Buyer agrees not to enter into exclusive negotiations for other acquisitions that would materially impact Buyer’s ability to close this transaction during the Exclusivity Period.”
This two-way commitment builds trust and shows the seller you are all in, not just shopping for better deals while tying them up.
5. Due Diligence Scope, Process, and Timeline
Outline what areas you will review (financials, legal, operations, customer contracts, etc.) and when you expect to complete them. Avoid phrases like “ongoing” or “as needed.”
Example:“Buyer will complete all financial, legal, and operational due diligence within 45 days, subject to timely access to requested materials.”
This keeps both sides aligned and accountable.
Additional Elements That Strengthen Your LOI
6. Assumed and Excluded Liabilities
Clarify what liabilities you are assuming, such as leases or warranties, and what stays with the seller.
Example:“Buyer shall assume existing customer contracts and lease obligations but shall not assume liabilities related to pre-closing legal claims or tax obligations.”
7. Key Employee Retention and Post-Transaction Roles
If certain team members must stay to ensure continuity, call it out. This shows you understand the business and its people—not just the numbers.
Example:“This offer is contingent upon the continued employment of the CEO and CFO under mutually agreed employment agreements to be finalized prior to closing.”
8. Financing or Regulatory Contingencies
If you require lender approval, investor consent, or regulatory clearance, be transparent about it.
Example:“This offer is contingent upon Buyer securing senior debt financing on commercially reasonable terms and any necessary regulatory approvals.”
LOI Best Practices That Prevent Future Friction
9. Don’t Over-Legalize
While you want to be thorough, don’t turn your LOI into a 30-page contract. The goal is to establish alignment, not lock both parties into inflexible terms. Balance clarity with flexibility.
10. Ensure Both Parties Have Professional Review
Engage M&A advisors and legal counsel early. This protects both sides from surprises and sets realistic expectations before entering due diligence.
Why Buyers Should Always Draft the LOI
Sellers may attempt to draft their own version, but serious buyers should take the lead. This ensures:
Your business and legal priorities are reflected.
The timeline works for your team.
You control the narrative and structure of the deal.
Drafting the LOI shows you are a prepared, credible buyer, not just testing the waters.
Final Thoughts on Writing a Strong M&A Letter of Intent (LOI)
The LOI is more than a formality—it’s your first real commitment in the M&A process. A well-written LOI builds trust, creates alignment, and sets the stage for a smooth closing.
Invest the time and effort to get it right. You’ll save weeks of renegotiation, avoid misunderstandings, and dramatically improve your chances of closing the deal you actually want—on the terms you expect.
Dr. Allen Nazeri, aka "Dr. Allen," boasts over 30 years of global experience as a healthcare entrepreneur. He is the Managing Director at American Healthcare Capital and Managing Partner at PRIME exits. Dr. Allen provides strategic growth consulting to leadership teams of both privately held and publicly listed companies, ensuring their preparedness for successful exits.
He holds a Dental Degree from Creighton University and an MBA in M&A and Investment Banking from the University of Bedfordshire. Dr. Allen is the author of "Value Engineering: Strategies to 10X the Value of Your Clinic and Dominate the Market!" and the brand new book "Selling Your Healthcare Company at a Premium". Dr. Allen offers a free valuation to business owners ready for a partial or complete exit strategy. Dr. Allen collaborates with strategic buyers, private equity firms, and institutional investors, taking direct accountability for the annual successful sell-side representation of nearly $750M in enterprise value.
To have a confidential discussion about your company and receive a free valuation, please email Allen@ahcteam.com or Allen@ahcpexits.com
You can now communicate with Dr. Allen's clone https://www.delphi.ai/drallen
Comments