The Document That Ends Your Negotiating Position

A letter of intent looks like a milestone. It is a number on paper, it feels like agreement, and most owners sign one with a sense of relief.

What it actually does is end the only period in the sale when you had alternatives. Before it, several parties might buy your company. After it, one party has a period of exclusive access and you have agreed not to talk to anyone else. That trade may be worth making. It is not usually understood as a trade at the moment it is made.

What binds, and the honest answer about it

The common shape is that price and terms are expressed as non-binding, while exclusivity, confidentiality, and who pays which expenses do bind.

That is the common shape. It is not a rule. A letter of intent, a term sheet, and an indication of interest may each be binding or non-binding, in whole or in part, depending on what the parties intended and how it was written, and the variations run in both directions. The name on the document tells you nothing about what you agreed to.

Which means the only way to know what binds you is to read it with somebody who reads these for a living, before you sign rather than after.

Why the asymmetry matters more than the number

Work through the consequence of the common shape and it is uncomfortable.

The price is the part that does not bind, and the exclusivity is the part that does. So the buyer retains the ability to revise their number after diligence, and you have given up the ability to go anywhere if they do. Everything that happens in the rest of the sale happens inside that asymmetry.

None of this is a reason to refuse. The process cannot finish without one, and no serious party will spend what diligence costs while competing against three others. It is a reason to spend your negotiating effort on the half that binds, which is the half most owners skim.

What to actually negotiate

How long exclusivity runs, and what extends it. Keep it as short as the work genuinely requires, and tie any extension to the buyer having done something rather than to the calendar having moved. A buyer who has not produced a diligence request list inside the first stretch of their own exclusivity is not working.

How specific the conditions are. “Satisfactory completion of due diligence” is a condition satisfied whenever the buyer says it is. Conditions naming what gets verified, and against what, are conditions somebody can be held to.

What happens on a walk-away. Expenses, and anything that survives.

What you are allowed to do during the period. Including whether you may respond to an unsolicited approach, which is not a theoretical question.

Use the stage to compare, not to commit

The most useful property of this stage is that it is cheap for the other side.

Asking several interested parties for an indication of interest costs them a few hours and costs you almost nothing. What comes back tells you which ones are serious, which one is a long way ahead of the others, and which ones were never going to pay what you need. You learn all of that before anybody has exclusivity, which is exactly the right order.

The emotional temperature is also still low here. Nobody has spent six figures on diligence or three months of attention, so terms that would become fights later get settled calmly now. Settle them now.

What the clock looks like after you sign

Confirmatory diligence commonly runs around ninety days. It can be shorter or longer depending on the buyer, the structure, and how ready your records are; a company whose numbers already tie moves faster than one assembling them while a buyer waits.

That number is worth knowing before you agree to an exclusivity period, because it is the difference between a window that fits the work and a window that quietly becomes an option on your company.

What getting it wrong costs

An owner who signs the first letter of intent that clears their number, on the buyer’s conditions, with open-ended exclusivity and a condition reading “satisfactory completion of due diligence,” has not closed a deal.

They have written one party a free option on their company for an undefined period, and taken the company off the market to pay for it. If that party reprices in month three, the owner’s choice is to accept or to start over, months older, with the market having moved on.

More on this: The Month You Agree to Be the Only Seller in the Room.

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This is what we do. Prism Edge runs several parties to this stage at the same time, so the letter of intent is signed from a position with alternatives rather than from relief, and negotiates the half of it that actually binds you.

The full chapter on developing the proposal is in The Business Sale, free to download here.

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General information, not legal, tax, or financial advice, and no advisor relationship is created by reading it. Rules change and the specifics of your situation matter. Always consult your own attorney and accountant before acting.