Letter of Intent (LOI)

After initial discussions and early due diligence, a buyer may submit a letter of intent to the seller. It typically covers the proposed price and how it will be paid, the structure of the deal, key conditions, the timetable, the due diligence still required and any exclusivity period.

Most terms in a letter of intent are not legally binding, allowing either side to walk away if due diligence uncovers problems or negotiations break down. However, certain clauses are usually binding, such as confidentiality and exclusivity, which prevents the seller from negotiating with other buyers for a set period.

For example, a buyer might send a letter of intent offering 60,000,000 for a business, subject to satisfactory due diligence and financing, with 60 days of exclusivity.

Letters of intent help parties confirm they agree on key points before spending heavily on lawyers and advisers. The term is often used interchangeably with term sheet, heads of terms or memorandum of understanding, though usage varies.