Letter of intent (LOI) template for M&A
In a company sale or acquisition process, the letter of intent (LOI) is a key step. It formalises a buyer’s interest and lays the foundations of the negotiation before the final signing. Download the template and adapt it to your operation.
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What is a LOI in M&A?
The LOI (Letter of Intent) is a document signed between a buyer and a seller which:
- expresses the buyer’s serious interest in the company,
- defines the main terms of the envisaged operation,
- organises the rest of the negotiations (due diligence, exclusivity, timetable…).
Important: the LOI is generally not a firm commitment to complete the transaction. It frames a phase of in-depth study and negotiation.
Where does the LOI fit in a sale process?
The LOI comes after the first phases of information exchange. A typical process:
In a process organised by an intermediary (investment bank), several buyers may be in competition up to the LOI.
The key role of exclusivity
The LOI generally makes it possible to set up an exclusivity period:
- the seller stops negotiating with other buyers,
- the selected buyer has reserved time to analyse the company,
- the discussions move forward on a privileged basis.
The seller may receive several LOIs and then choose the one to proceed with.
The LOI is not a guarantee of transaction
One of the essential points to understand: 👉 more than half of LOIs do not lead to an acquisition. The LOI marks a serious interest, but not a definitive commitment.
Why might a LOI not succeed?
Several frequent causes:
Change in the company’s performance
During due diligence, the situation can change:
- stronger growth than expected → disagreement on the price,
- operational difficulties → withdrawal of the buyer.
Disagreements on the key terms
Examples:
- valuation,
- scope of the sale,
- representations and warranties (GAP),
- management support period,
- payment structure.
Buyer financing problem
Financing is often a condition precedent.
Deteriorated human relationship
This factor is often underestimated but decisive.
The consequences of a LOI that does not succeed
The main cost is the time lost:
- exchanges and negotiations,
- preparation and analysis of documents,
- due diligence,
- payment structure.
The seller is often the most affected:
- strong mobilisation of the manager,
- sharing of sensitive information,
- possible drop in performance during the process.
If the LOI fails:
- the seller can resume the process with other buyers,
- or abandon the sale project.
Ready-to-use letter of intent template
Download the LOI template, complete it and adapt it to your operation.
The essential elements of a LOI
The scope of the operation
- percentage of capital sold (70%, 100%, etc.),
- subsidiaries included,
- any excluded assets.
The indicative valuation
Often based on:
- an EBITDA multiple,
- or a target enterprise value.
The LOI may provide for an adjustment according to future accounts (between signing and closing).
The payment structure
Examples:
- cash payment at closing,
- contingent payment (earn-out),
- amount placed as a guarantee (GAP).
The financing of the acquisition
The buyer generally describes:
- equity,
- bank debt,
- financial partners.
The support of the manager
The LOI often specifies:
- the duration of the manager’s presence after the sale,
- their operational role,
- the incentive mechanisms.
Examples:
- retention of a minority stake,
- earn-out,
- “bad leaver” clauses.
👉 A bad leaver clause penalises the manager if they leave the company too early.
Representations and warranties (GAP)
A central topic in M&A. The LOI generally indicates:
- the principle of the guarantee,
- the percentage of the price covered,
- the duration of the guarantee,
- the amount placed in escrow.
Due diligence
The LOI provides for the audit phase:
- financial,
- legal,
- tax,
- social,
- operational.
Objective for the buyer: verify that reality matches the information received.
The conditions precedent
They allow the buyer to withdraw if certain conditions are not met:
- obtaining the financing,
- absence of significant change,
- validation of the audits,
- any regulatory approvals.
The seller protection clauses
Non-solicitation
The buyer undertakes not to poach the seller’s employees.
Reinforced confidentiality
Protection of the sensitive information shared.
The exclusivity clause
A central clause of the LOI:
- limited duration (often 1 to 3 months),
- prohibition for the seller to negotiate elsewhere,
- objective: finalise the transaction.
If the operation fails after exclusivity, the seller can resume the process.
The break-up penalties
In principle, the LOI is not binding on the conclusion. But some LOIs provide for:
- a break-up fee,
- reimbursement of costs,
- a penalty in the event of abusive withdrawal.
These clauses are negotiable.
The human dimension: a decisive factor
Beyond the figures, the success of an operation strongly depends on:
- the quality of the relationship,
- the strategic alignment,
- mutual trust.
Many transactions fail not for financial reasons, but relational ones. This is particularly true if the manager stays in the company after the sale.
LOI vs final contract (SPA)
The LOI
- sets out the principles,
- remains general,
- is not exhaustive.
The final contract (SPA)
- legally binding,
- very detailed,
- finalises the transaction.
The LOI creates a privileged relationship to reach the SPA.
Conclusion: what is the LOI really for?
The LOI is a strategic tool that makes it possible to:
- formalise a serious interest,
- align seller and buyer,
- organise the due diligence,
- secure an exclusivity,
- prepare the final transaction.
But it does not guarantee the sale. 👉 Choosing the right partner and validating the fundamentals from the LOI stage is essential to maximise the chances of success.
Frequently asked questions about the LOI
Is the LOI template free and editable?
Yes. The template is downloadable, flexible and adaptable to your operation: simply complete it (indicative price, scope, exclusivity, conditions precedent…) according to your project.
Is the LOI legally binding?
In principle not on the conclusion of the sale, but some clauses are (exclusivity, confidentiality, non-solicitation) and some LOIs provide for break-up penalties. The final contract (SPA) is fully binding.
What should a LOI contain?
The scope of the operation, the indicative valuation, the payment structure, the financing, the management support, the representations and warranties (GAP), the due diligence, the conditions precedent and the seller protection clauses.
Why do many LOIs not succeed?
More than half do not succeed: change in performance during due diligence, disagreements on the key terms, buyer financing problem or a deteriorated human relationship.
From LOI to closing
Beyond the template, Collaboration Capital supports you in structuring, negotiating and securing your sale or acquisition operation.
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