LOI (Letter of Intent)

What Is an LOI?

A letter of intent (LOI) — also called a term sheet or heads of terms (Investopedia) — is a document that outlines the key terms of a proposed acquisition. Submitted after the buyer has conducted substantial due diligence, the LOI represents a serious commitment to pursue the transaction and typically includes a request for an exclusivity period during which the seller agrees not to negotiate with other parties.

While most provisions in an LOI are non-binding, certain clauses — notably exclusivity (no-shop), confidentiality, and expense allocation — are legally enforceable. This hybrid nature makes the LOI a pivotal document in the M&A process (Corporate Finance Institute).

LOI in the Deal Timeline

The LOI marks the transition from a competitive process to bilateral negotiation:

1. First-round bids (IOI) — preliminary, non-binding expressions of interest (for the complete timeline, see the sell-side M&A process)
2. Shortlisting and due diligence — selected bidders conduct detailed investigation (our M&A due diligence checklist covers the key workstreams)
3. Management presentations — shortlisted buyers meet the target’s leadership team
4. Final bids (LOI) — buyers submit detailed, near-final terms with a specific price
5. Exclusivity granted — the seller selects a preferred bidder and enters exclusive negotiations
6. Definitive agreement (SPA) — the parties negotiate and execute a binding purchase agreement

Key Components of an LOI

Price and Consideration

• Purchase price — stated as a specific enterprise value (not a range, unlike the IOI)
• Form of consideration — cash, stock, or a combination
• Price adjustments — mechanisms for net debt, working capital, and other closing adjustments

Deal Structure

• Asset vs. share purchase — determines tax treatment, liability assumption, and consent requirements
• Rollover equity — any portion of seller proceeds reinvested alongside the buyer
• Earnout provisions — contingent consideration tied to post-closing performance milestones

Conditions and Approvals

• Remaining due diligence — specific items the buyer still needs to confirm
• Regulatory approvals — antitrust, foreign investment, or industry-specific clearances
• Board and shareholder approvals — governance requirements on both sides
• Financing contingency — whether the offer is subject to the buyer securing funding

Binding Provisions

• Exclusivity (no-shop) — the seller agrees to negotiate exclusively with the buyer for a defined period (typically 30–90 days)
• Confidentiality — reinforces NDA obligations and may add deal-specific restrictions
• Break-up fee — in some transactions, a fee payable if either party walks away
• Expense allocation — who bears transaction costs if the deal does not close

Negotiating the LOI

The LOI negotiation is strategically important for both parties:

For sellers:

• Maximise price certainty before granting exclusivity
• Limit the scope of remaining due diligence conditions
• Negotiate a shorter exclusivity period to maintain leverage
• Ensure the buyer’s financing is committed, not contingent

For buyers:

• Secure a longer exclusivity window to complete diligence without competitive pressure
• Preserve flexibility on key terms that may change during final diligence
• Include appropriate representations and conditions to protect against newly discovered risks

LOI vs. Definitive Agreement

For a step-by-step walkthrough of the entire transaction lifecycle, see our M&A process guide. The LOI is not the final contract. After exclusivity is granted, the parties negotiate a definitive purchase agreement — typically a share purchase agreement (SPA) or asset purchase agreement — that contains the fully negotiated, legally binding terms including representations and warranties, indemnification provisions, and closing conditions.

LOIs in Asia Pacific

LOI conventions vary across Asia Pacific jurisdictions. In Australia and Hong Kong, LOIs tend to follow Anglo-Saxon norms with detailed terms and clear binding/non-binding delineation. In Japan, the LOI (基本合意書) may carry stronger moral weight, with parties treating non-binding provisions as implicit commitments. In Southeast Asian markets, the enforceability of exclusivity clauses may depend on local contract law. AI-native platforms like Amafi help cross-border dealmakers navigate these jurisdictional nuances and maintain process discipline across markets.