Letter of intent (LOI) template for M&A
In a business sale or acquisition, the letter of intent (LOI) — often called heads of terms in the UK — is a key milestone. It formalises a buyer’s interest and sets the basis for negotiation before the definitive agreement is signed. Download our letter of intent template and adapt it to your transaction.
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What is a letter of intent (LOI) in M&A?
The LOI (letter of intent) is a document signed by a buyer and a seller that:
- sets out the buyer’s serious interest in the company,
- defines the main terms of the proposed transaction,
- organises the next stage of negotiations (due diligence, exclusivity, timetable, etc.).
Important: an LOI is generally not a firm commitment to complete the transaction. It frames a period of in-depth review and negotiation.
Where does the LOI fit in the sale process?
The LOI comes after the initial rounds of information exchange. A typical process:
In a process run by an intermediary (an M&A adviser), several buyers may compete up to the LOI stage.
The key role of exclusivity
The LOI usually establishes an exclusivity period:
- the seller stops negotiating with other buyers,
- the selected buyer has dedicated time to review the company,
- discussions move forward on a preferred basis.
The seller may receive several LOIs and then choose which one to proceed with.
An LOI does not guarantee a deal
One of the essential points to understand: more than half of LOIs do not lead to an acquisition. An LOI signals serious interest, not a definitive commitment.
Why might an LOI fall through?
Several common causes:
Changes in the company’s performance
The situation can change during due diligence:
- stronger growth than expected → disagreement on price,
- operational difficulties → the buyer withdraws.
Disagreement on key terms
Examples:
- valuation,
- scope of the sale,
- warranties and indemnities,
- the owner-manager’s handover period,
- payment structure.
Buyer financing issues
Financing is often a condition precedent.
A breakdown in the relationship
This factor is often underestimated, yet decisive.
The consequences of a failed LOI
The main cost is lost time:
- discussions and negotiations,
- preparing and analysing documents,
- due diligence,
- payment structure.
The seller is often the most affected:
- heavy demands on the owner-manager’s time,
- sharing of sensitive information,
- a possible dip in performance during the process.
If the LOI fails:
- the seller can restart the process with other buyers,
- or abandon the planned sale.
Ready-to-use letter of intent template
Download the LOI template, fill it in and adapt it to your transaction.
What to include in a letter of intent
Scope of the transaction
- percentage of share capital sold (70%, 100%, etc.),
- subsidiaries included,
- any excluded assets.
Indicative valuation
Often based on:
- an EBITDA multiple,
- or a target enterprise value.
The LOI may provide for an adjustment based on future accounts (between signing and completion).
Payment structure
Examples:
- cash payment on completion,
- deferred contingent consideration (earn-out),
- amount held back to secure the warranties and indemnities.
Acquisition financing
The buyer usually describes:
- equity,
- bank debt,
- financial partners.
The owner-manager’s handover
The LOI often specifies:
- how long the owner-manager stays on after the sale,
- their operational role,
- incentive mechanisms.
Examples:
- a retained minority stake,
- earn-out,
- “bad leaver” clauses.
A bad leaver clause penalises the owner-manager if they leave the business too early.
Warranties and indemnities
A central issue in M&A. The LOI usually sets out:
- the principle of the warranties and indemnities,
- the percentage of the price covered,
- the duration of the cover,
- the amount held in escrow.
Due diligence
The LOI provides for the due diligence phase:
- financial,
- legal,
- tax,
- employment,
- operational.
The buyer’s objective: to verify that reality matches the information received.
Conditions precedent
They allow the buyer to withdraw if certain conditions are not met:
- obtaining financing,
- no material adverse change,
- satisfactory due diligence findings,
- any regulatory approvals.
Seller protection clauses
Non-solicitation
The buyer undertakes not to poach the seller’s employees.
Enhanced confidentiality
Protection of the sensitive information shared.
The exclusivity clause
A central clause of the LOI:
- limited duration (often 1 to 3 months),
- the seller may not negotiate elsewhere,
- objective: to complete the transaction.
If the deal fails after the exclusivity period, the seller can restart the process.
Break fees
In principle, an LOI is not binding as to completing the deal. However, some LOIs provide for:
- a break fee,
- reimbursement of costs,
- a penalty for withdrawal in bad faith.
These clauses are negotiable.
The human factor: often decisive
Beyond the numbers, the success of a transaction depends heavily on:
- the quality of the relationship,
- strategic alignment,
- mutual trust.
Many transactions fail for relational rather than financial reasons. This is especially true if the owner-manager stays with the business after the sale.
LOI vs definitive agreement (SPA)
The LOI
- sets out the principles,
- remains general,
- is not exhaustive.
The definitive agreement (SPA)
- legally binding,
- highly detailed,
- completes the transaction.
The LOI creates a preferred relationship with a view to reaching the SPA (share purchase agreement).
Conclusion: what is a letter of intent really for?
The LOI is a strategic tool that helps to:
- formalise serious interest,
- align seller and buyer,
- organise due diligence,
- secure exclusivity,
- prepare the final transaction.
But it does not guarantee the sale. Choosing the right counterparty and validating the fundamentals from the LOI stage onwards is essential to give the deal the best chance of success.
Letter of intent: frequently asked questions
Is the LOI template free and editable?
Yes. The template can be downloaded, edited and adapted to your transaction: simply fill it in (indicative price, scope, exclusivity, conditions precedent, etc.) to suit your project.
Is a letter of intent legally binding?
In principle, not as to completing the sale, but some clauses are binding (exclusivity, confidentiality, non-solicitation) and some LOIs provide for break fees. The definitive agreement (SPA), by contrast, is fully binding.
What should a letter of intent contain?
The scope of the transaction, the indicative valuation, the payment structure, the financing, the owner-manager’s handover, the warranties and indemnities, due diligence, conditions precedent and seller protection clauses.
Why do so many LOIs fall through?
More than half do not lead to a deal: changes in performance during due diligence, disagreement on key terms, buyer financing issues or a breakdown in the relationship.
From letter of intent to completion
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