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M&A Explained

What Is a Letter of Intent (LOI)?

A plain-English answer, and why it matters when you actually sell.

Short answer: A letter of intent, or LOI, is a mostly non-binding document that sets out the proposed price and key terms of a business sale before the buyer starts confirmatory diligence. It signals serious intent, frames the deal structure, and usually grants the buyer a period of exclusivity. The binding parts are typically confidentiality and exclusivity; price and structure remain subject to diligence.

Why Letter of Intent (LOI) matters when you sell

The LOI is the moment a conversation becomes a deal. It pins down the headline number, whether it is an asset or stock sale, how much is cash at close versus earnout or seller note, and how long the buyer gets to look under the hood exclusively. Once you sign, you have usually agreed not to shop the business to anyone else for that window, so the terms in the LOI matter enormously even though most of it is non-binding.

The most common mistake owners make is treating the LOI as the finish line. It is the starting line for diligence, where price can still move. WETYR negotiates the LOI to protect your number and minimize the retrade risk before you give up exclusivity.

Frequently asked questions

Is a letter of intent binding?
Mostly no. Price and structure are usually non-binding and subject to diligence. Confidentiality and exclusivity clauses are typically binding, which is why the exclusivity period and terms deserve careful negotiation.
What comes after the LOI?
Confirmatory due diligence, then the definitive purchase agreement. The LOI frames the deal; diligence tests it; the purchase agreement makes it binding at close.
Can a buyer lower the price after the LOI?
They can try, called a retrade, if diligence surfaces problems. The best defense is going into the LOI with clean, already-proven financials so there are no surprises to justify a lower number.

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WETYR is not a registered broker-dealer, business broker, real estate broker, investment adviser, law firm, or accounting firm. WETYR provides operator-led advisory and consulting services only; it does not effect transactions in securities, hold client funds or securities, or receive transaction-based compensation for securities transactions. Nothing on this site is brokerage, securities, legal, tax, accounting, or investment advice, or an offer to buy or sell any business or security. Acquisitions, sales, and financings are completed by the principals with their own licensed professionals. Any valuation figure shown is an informational estimate, not a formal appraisal or offer. See our Terms and Disclosures.