Quick answer: A buyer’s letter of intent states the price and the assumptions behind it, how the price will be paid, how debt and working capital are treated, what diligence will cover and how long it will take, how the deal will be financed and what exclusivity the buyer asks for. Usually only a few provisions bind. The protection comes from stating the assumptions, so a later change of terms rests on a documented premise, while keeping the offer competitive.
Key points
- A letter of intent has three jobs: win the seller’s choice, frame what diligence and the purchase agreement will follow, and give the buyer a documented basis for any later change of terms.
- Price protection comes from stating the assumptions behind the number, such as the earnings it rests on and the working capital it expects, so that a later change traces to a finding.
- The seller reads every protective term as a risk. A financing condition, an open diligence scope or a long exclusivity period loses bids unless it is narrowed and dated.
- Usually only a few provisions bind, such as confidentiality, exclusivity and expenses. The representations, indemnity and escrow wait for the purchase agreement, where counsel drafts them.
What a buyer’s letter of intent has to do
A buyer’s letter has three jobs. It has to win the seller’s choice against other offers, frame the work that diligence and the purchase agreement will follow, and leave the buyer a documented basis for changing terms if diligence disagrees with its premises. The jobs pull against each other, because every protection a buyer adds makes the offer harder to pick. The skill lies in writing protections that a seller reads as clarity and not as risk.
The seller’s reading of the same document is in the guide to reading a letter of intent, and the buy-side process guide shows where the letter falls among the other stages. Length matters less than precision. Most of a letter’s force comes from what it states plainly and from what it leaves to the purchase agreement.
Price and structure: the assumptions behind the number
A price stated without its basis leaves the buyer nothing to point to when diligence disagrees. A letter that says what the price rests on turns a later change into a conversation about a stated premise. Six terms carry the economics.
- Price and basis. The headline price on a cash-free, debt-free basis, with the earnings figure and period it rests on. The bridge from enterprise value to equity value shows why the basis matters.
- Form of payment. Cash at closing and any seller note, rollover or earnout, each with its amount, so the seller sees what is certain and what depends on results.
- Debt and debt-like items. A definition, or a method for building the list, so that items such as accrued bonuses and customer deposits are not first debated at closing. The guide to debt and debt-like items lists the usual candidates.
- Working capital. A target level, or the method for setting it, as the working capital peg guide describes, so the business is delivered with the working capital the price assumed.
- Structure. Asset or stock purchase, stated as a starting point for tax and legal advice, since the comparison of asset and stock sales shows that structure changes both sides’ results.
- Escrow or holdback. The principle and the purpose, with amounts left to the purchase agreement.
Illustrative example: A term summary a seller can read in a minute
A buyer can place a summary at the front of the letter. The figures are invented to show the layout and are not benchmarks.
| Term | Buyer’s proposal |
|---|---|
| Enterprise value | $10,000,000, cash-free and debt-free |
| Basis | 5.0x trailing adjusted EBITDA of $2,000,000 as presented in the information memorandum and tested in diligence |
| Cash at closing | $7,000,000 |
| Seller note | $1,500,000, ranked behind the buyer’s lender, with a stated rate and schedule |
| Earnout | $1,500,000 if EBITDA in the year after closing reaches a stated level |
| Working capital | Delivered at a normal level, set by averaging monthly balances before closing |
| Financing | A named lender, credit approval pending, with progress reported to the seller |
| Diligence | Financial, legal, tax, customer and operating reviews, each dated and assigned |
| Exclusivity | A short first period, with an extension earned by milestones |
The three payments add to the price: $7,000,000 plus $1,500,000 plus $1,500,000 is $10,000,000. Only 70 percent of the headline is certain cash at closing, and the table says so on its face, which lets the seller compare the offer fairly. Because the basis is stated, a confirmed EBITDA of $1,800,000 points to $9,000,000 at the same multiple, and both sides can see the one finding that moved the price. A seller may resist a formula, so a buyer that prefers not to state a multiple still states the earnings figure.
Diligence, financing and conditions: showing the seller how this closes
A seller reads the closing path as part of the price. A scope that names the reviews and dates them reads as a plan, while diligence left to the buyer’s satisfaction reads as an option to walk, and sellers often discount offers that contain it. The buyer lists the workstreams (financial, legal, tax, customer, operating and any property or environmental review), who performs each and when it starts, drawing on its diligence plan.
Financing gets the same treatment. The letter names the sources of funds, such as equity, a lender and any seller note, says how far the credit process has advanced and limits any condition to final approval. The financing guide lays out the layers, and the guide to 7(a) loans covers a program that some smaller buyers use.
Conditions list the approvals the closing depends on: the buyer’s board or investment committee, third-party consents such as a landlord or a key customer, licenses and any regulatory filings. The Hart-Scott-Rodino size-of-transaction threshold for 2026 is $133.9 million,[1] and antitrust counsel confirms whether a given deal needs a filing. A timetable stated in phases, from signing through diligence, documentation and approvals to closing, lets the seller test the buyer’s plan against its own calendar.
Exclusivity and the terms about people
Exclusivity is the buyer’s main request, because diligence costs real money for a company the buyer does not yet own. The request lands better when it is sized to the buyer’s own plan: the steps listed, a person named for each and milestones the buyer accepts. A buyer that offers the seller a right to end exclusivity if the price changes without a documented finding gives up little it intended to use. The seller’s view of the clause is in the guide to exclusivity and no-shop provisions.
The letter also states what the buyer expects of the people. For the seller, that means the role after closing (a transition, a consulting agreement or employment), how pay in that role relates to any earnout or rollover, and the non-compete and non-solicit the buyer will ask for. The guide to post-closing roles and the guide to non-competes and non-solicits explain the terms the seller will weigh. For the team, the letter says which key employees the buyer expects to keep and whether signed retention agreements are a condition. Points raised now are priced into the offer. Points raised after exclusivity begins look like a reopening of the deal.
Protections the seller reads as risk
Each protective term has a version that earns the seller’s trust and a version that costs the bid.
| Protection | How the seller reads it | A version that protects and competes |
|---|---|---|
| Financing condition | An option to walk away | Name the lender, report progress and limit the condition to final approval, with a date |
| Diligence at the buyer’s discretion | A commitment with no content | List the reviews, assign and date them, and promise written reasons for any change |
| Long exclusivity | A lock-up with no end | A short first period and an extension earned by milestones |
| Broad debt-like definition | A price that will shrink at closing | Name the categories now, with examples, so none is a surprise |
| Open working capital target | A second price change at closing | State the method and the averaging period |
| Price tied to a formula | A retrade written in advance | State the earnings assumption and commit to tie any change to a documented finding |
A letter that is easy to accept does not have to be generous. It has to be specific, and a precise offer at a lower price can beat a vague one at a higher price, as the seller’s side of the comparison in the guide to comparing first-round offers shows.
What binds, and what waits for the purchase agreement
| Provision | Often drafted to bind? | Drafting point |
|---|---|---|
| Confidentiality | Yes | Refer to the existing agreement, or restate it |
| Exclusivity | Yes | Dates, milestones and the seller’s exit rights |
| Expenses | Yes | Each side pays its own, and any reimbursement trigger is stated |
| Governing law and disputes | Yes | Chosen with counsel |
| Price, structure and conditions | No | Stated plainly so the letter records the premises |
| Obligation to complete the deal | No | A statement that none arises until a purchase agreement is signed |
| Timetable | No | Dated targets, not promises |
Whether any provision binds depends on the wording and the governing law, so the buyer’s attorney reviews the binding provisions and the statement of what is not binding. Detail waits for the purchase agreement: the seller’s representations and warranties, the limits on indemnification, the escrow terms, the disclosure schedules, the covenants that apply between signing and closing and the ancillary agreements. The guide to the purchase agreement and the guide to representations, warranties, indemnification and escrows explain them from the seller’s side, and the buyer’s roadmap shows where they fall in the process. A letter that tries to settle all of it runs long and invites early disputes, and one that is silent on how risk will be allocated leaves the buyer without a reference point. This page is general education and not legal advice.
Frequently asked questions
What should a buyer’s letter of intent include?
Price and how it is paid, the debt, cash and working capital basis, the structure of the deal, the diligence scope and timetable, the financing plan, the conditions to closing, exclusivity, the seller’s expected role and any non-compete, confidentiality, and a statement of which provisions bind. Detail beyond that is usually left to the purchase agreement.
Is a letter of intent binding on the buyer?
Usually only in part. Price and structure are normally non-binding, while confidentiality, exclusivity, expenses and governing law are often drafted to bind. The wording and the governing law decide, so the buyer’s attorney reviews the binding provisions and the statement of what is not binding before the letter is sent.
How long should exclusivity be in a buyer’s letter of intent?
Long enough to finish a defined diligence and documentation plan, and no longer. A buyer that lists the steps, names who performs each and accepts dated milestones is more likely to be granted the period it asks for, and a shorter first period with an extension earned by progress is easier for a seller to accept than a long one.
Can a buyer lower the price after signing a letter of intent?
The price is normally non-binding, so a buyer can propose a change. Sellers accept one more readily when the letter stated the assumptions behind the price and the buyer ties the change to a specific, documented diligence finding. A change without a documented reason is a retrade and damages the buyer’s credibility for the rest of the deal.
Thinking about a sale or an acquisition?
The Impetus Group provides sell-side and buy-side M&A advisory, from preparation and buyer outreach to negotiation and closing. A transactional valuation is often the first step, scoped and priced separately.
Related guides
- How to Read a Letter of Intent: The Terms That Decide What You Receive: A plain-language guide to the letter of intent in a business sale: price, structure, working capital, exclusivity, diligence and the terms that move your proceeds.
- Exclusivity and No-Shop Provisions in a Business Sale: Length, Terms and Trade-Offs: Exclusivity bars a seller from talking to other buyers after a letter of intent. See what a no-shop restricts, how long it should run and what to ask in return.
- How a Buy-Side Acquisition Process Works: From Strategy to Integration: The stages of acquiring a company: criteria and sourcing, outreach, valuation, the letter of intent, diligence, financing, the purchase agreement and integration.
- Net Working Capital Peg: How the Working Capital Adjustment Works: The working capital peg sets the level of working capital a seller must leave in the business at closing. See how it is calculated, negotiated and adjusted.
- Sourcing Acquisition Targets: How Buyers Find Businesses to Buy: Where buyers find acquisition targets: broker listings, advisor-led processes, direct outreach to owners, industry contacts and referrals, plus pipeline tracking.
- Valuing an Acquisition Target: How a Buyer Decides What to Pay: How a buyer values an acquisition target: restate earnings, price the risks, test the return and funding limits, then set a walk-away price. With a worked example.
Sources
- New HSR thresholds and filing fees for 2026. Federal Trade Commission. Accessed October 13, 2026.
This guide is general education. It is not a valuation opinion, appraisal, investment advice, or legal or tax advice. How these guides are made.