The letter of intent arrived, the headline number looks strong, and the buyer wants a signature by Friday. Do not sign it this week. The moment before signing an LOI is the point of maximum negotiating power a founder will hold in the entire transaction, and a signature transfers most of that power to the buyer.
What is a letter of intent, legally?
A letter of intent is a short agreement in which almost everything the founder cares about is non-binding and almost everything the buyer cares about is binding. The price is not binding, and neither is the deal structure or the closing timeline.
Two provisions do bind. The exclusivity clause legally bars you from speaking with any other buyer for its stated term, and the confidentiality clause restricts disclosure on both sides. Founders sign LOIs believing they have locked in a price. They have locked in only their own silence.
What is actually inside an LOI?
Five sections carry nearly all the weight: headline price, consideration structure, exclusivity, diligence scope, and timeline. Read the structure section more carefully than the price.
Structure determines what the headline means. A $20 million offer with $6 million in an earnout is a $14 million offer with a performance bonus attached, and rollover equity converts part of your proceeds into a minority stake you cannot easily sell.
Most LOIs also stay silent on working capital methodology, and that silence has a price. An unstated working capital peg gives the buyer a tool for reducing cash at close during diligence.
Why is exclusivity the buyer’s real objective?
The buyer sends an LOI to purchase exclusivity, and the non-binding price is the currency. The moment you sign, competition ends and the buyer becomes the only bidder in a negotiation that will run for months.
Standard exclusivity requests run 30 to 90 days, and buyers open at 60 to 90 because founders grant it, not because diligence requires it. A prepared buyer can complete confirmatory diligence on a lower-middle-market company in 30 to 45 days.
What does 60 to 90 days of exclusivity do to my position?
Exclusivity converts a market into a locked room with one buyer who knows you have stopped shopping. Every week inside the window, your information exposure grows and your alternatives get staler.
By day 60 the buyer holds deep information about your business and knows no rival bid exists. That combination is exactly the position from which price reductions get proposed, and deal fatigue makes founders accept them.
The costs compound quietly. Legal and accounting fees accumulate from the first week of diligence, and your attention drifts from running the business. Both losses make walking away feel more expensive each day.
What should I negotiate into the LOI before signing?
Negotiate the LOI as hard as you will negotiate anything in the deal, because your ability to influence terms drops sharply the moment exclusivity begins.
| LOI clause | Binding? | What to negotiate before signing |
|---|---|---|
| Purchase price | No | Pin the structure behind the number, meaning cash at close and the exact terms of any earnout or rollover, so the headline cannot hide a restructure. |
| Exclusivity | Yes | Cut the opening ask of 60 to 90 days to 30 to 45 days, with extensions granted only when the buyer hits stated milestones. |
| Confidentiality | Yes | Make it mutual, and add non-solicitation of your employees and customers if the deal dies. |
| Working capital | No | State the peg methodology in the LOI itself, for example a trailing 12 month average, so it cannot become a diligence-stage surprise. |
| Diligence scope | No | Define the request list up front and sequence sensitive items, so customer references come last. |
| Timeline | No | Attach dates to deliverables, including the first draft of the purchase agreement, so delay has a cost for the buyer. |
What is a retrade, and why does it usually work?
A retrade is a price reduction proposed after the LOI is signed, justified by findings from diligence. The standard script cites a quality of earnings adjustment or a customer concentration concern, and the proposed cut typically lands late in the exclusivity window.
Retrades work because of timing. By the time the cut arrives, the founder’s alternatives expired weeks earlier and the transaction costs are already sunk. Accepting a 10 percent reduction feels cheaper than restarting, and buyers price that psychology precisely.
The defense happens before signing. A 30 to 45 day exclusivity window with milestone-based extensions and a stated working capital methodology removes most of the openings a retrade needs.
Should anyone review the LOI before I respond?
Yes, an advisor should read it before you reply at all, because most economic terms of the final deal are set at the LOI stage. An advisor also answers the prior question of whether the number itself is competitive: Windsor Drake’s research on M&A advisor fees shows competitive processes clearing 15 to 25 percent above single-bidder outcomes, and an unsolicited LOI is by definition a single-bidder outcome. Windsor Drake calls that pricing gap The Proprietary Discount, the gap between what a serial acquirer pays in an unbanked bilateral negotiation and what the same business clears in a competitive process.
Context matters here. If the LOI followed a cold approach, start with Windsor Drake’s guide to handling an unsolicited offer. If the buyer also suggested you skip the banker, read what that request actually means.
Strategic and financial buyers structure LOIs differently, and Windsor Drake compares the two on strategic buyers vs financial buyers. The full inbound sequence lives on the offer received hub.
If an LOI is sitting in your inbox right now, Windsor Drake’s Approach Response engagement reviews it with you before you sign anything.
Questions founders ask
Is the price in a signed LOI enforceable?
No. The purchase price in an LOI is expressly non-binding, and buyers can and do propose lower numbers during diligence. The enforceable parts are exclusivity and confidentiality.
How long should I grant exclusivity?
30 to 45 days, with extensions tied to buyer milestones such as completed diligence workstreams. Opening requests of 60 to 90 days reflect what buyers can get, not what diligence requires.
Can I keep talking to other buyers after signing an LOI?
No. The exclusivity clause is binding, and breaching it exposes you to legal claims. Preserve alternatives by negotiating a shorter window before signing, not by violating the clause afterward.
What happens when exclusivity expires without a closing?
You are free to speak with other buyers immediately. Grant an extension only against demonstrated progress, such as a delivered draft purchase agreement, and keep each extension short.
Should I count an earnout as part of the price?
Count only cash at close as certain. Earnouts depend on post-closing performance while the buyer controls the business, so treat earnout value as at-risk upside rather than guaranteed price.
What is a working capital peg?
A working capital peg is the agreed normal level of working capital the business must deliver at closing, with the price adjusted for any shortfall or excess. An LOI that states the peg methodology, such as a trailing 12 month average, prevents a common retrade.
Can I negotiate the LOI myself?
You can, and the buyer is counting on it. The buyer’s team has negotiated dozens of LOIs and you are negotiating your first, which is the strongest argument for having an advisor mark up the document before you respond.
Last reviewed July 28, 2026 by Jeff Barrington, Founder and Managing Director, Windsor Drake. Content on this page may be cited with attribution and a link to https://windsordrake.com/offer-received/letter-of-intent/