LOI Negotiation Guide

LOI PHILOSOPHY

Understanding Letters of Intent

LOI NEGOTIATION FUNDAMENTALS

WHAT AN LOI ACTUALLY IS:
☐ Non-binding expression of intent (mostly)
☐ Framework for definitive agreement
☐ Psychological commitment by buyer
☐ Exclusivity is typically binding
☐ Confidentiality is typically binding
☐ Sets the negotiation anchors

WHY LOI TERMS MATTER:
☐ LOI terms tend to stick in definitive
☐ Hard to renegotiate after signing
☐ Sets buyer expectations
☐ Affects deal team behavior
☐ Influences timeline and process

LOI NEGOTIATION PRINCIPLES:
☐ Everything is negotiable (until it isn't)
☐ Competition creates leverage
☐ Don't accept first offer
☐ Understand your BATNA
☐ Know your walk-away points
☐ Speed matters (but not more than terms)

COMMON LOI MISTAKES:
☐ Accepting exclusivity too easily
☐ Ignoring earnout complexity
☐ Missing key conditions
☐ Underestimating reps/warranties
☐ Not reading the fine print
☐ Assuming everything is boilerplate
☐ Signing before legal review

LOI LEVERAGE FACTORS:
Your leverage increases when:
☐ Multiple interested buyers
☐ Strong financial performance
☐ Unique strategic asset
☐ Limited time pressure
☐ Relationship with buyer

Your leverage decreases when:
☐ Single interested buyer
☐ Challenging financial position
☐ Buyer knows your constraints
☐ Desperate to sell
☐ Significant issues in DD

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COMPREHENSIVE LOI ANALYSIS

Key LOI Terms Analysis Template

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LOI DETAILED ANALYSIS
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BUYER: _______________
LOI Date: _______________
Response Deadline: _______________
Reviewed by: _______________

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SECTION 1: VALUATION & CONSIDERATION
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HEADLINE PURCHASE PRICE:
Total consideration: $_______________
Implied multiple: ___x revenue / ___x EBITDA

CONSIDERATION BREAKDOWN:
| Component | Amount | % of Total | Notes |
|-----------|--------|------------|-------|
| Cash at close | $___M | ___% | |
| Stock | $___M | ___% | |
| Earnout | $___M | ___% | |
| Escrow/holdback | $___M | ___% | |
| **TOTAL** | **$___M** | **100%** | |

STOCK CONSIDERATION (if any):
Stock type: ☐ Common ☐ Preferred
Valuation basis: _______________
Registration rights: ☐ Yes ☐ No
Lock-up period: ___ months
Collar/floor: ☐ Yes ☐ No

EARNOUT DETAILS:
Earnout amount: $___M (maximum)
Earnout period: ___ years
Metric: ☐ Revenue ☐ EBITDA ☐ Other: ___
Targets and payouts:
| Year | Metric Target | Payout |
|------|---------------|--------|
| 1 | $___M | $___M |
| 2 | $___M | $___M |
| 3 | $___M | $___M |

Earnout concerns:
☐ Achievability of targets
☐ Control over business
☐ Measurement methodology
☐ Acceleration provisions
☐ Dispute resolution

ESCROW/HOLDBACK:
Amount: $___M (___% of price)
Duration: ___ months
Release conditions: _______________
Basket/cap relationship: _______________

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SECTION 2: DEAL STRUCTURE
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TRANSACTION TYPE:
☐ Stock purchase (buyer acquires shares)
☐ Asset purchase (buyer acquires assets)
☐ Merger (company merges into buyer)

Tax implications:
For sellers: _______________
For company: _______________
Recommended structure: _______________

WORKING CAPITAL:
Target working capital: $___M
Calculation methodology: _______________
True-up mechanism: _______________
Collar (if any): +/- $___

Post-close adjustment:
☐ Settlement within ___ days of close
☐ Dispute resolution: _______________

DEBT/CASH:
Cash treatment: ☐ Included ☐ Excluded
Debt treatment: ☐ Assumed ☐ Paid off
Estimated cash at close: $___M
Estimated debt at close: $___M

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SECTION 3: EXCLUSIVITY & TIMING
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EXCLUSIVITY:
Period requested: ___ days
Our target: ___ days maximum

Exclusivity provisions:
☐ No-shop (can't solicit others)
☐ No-talk (can't engage with others)
☐ Notification right (must inform buyer)
☐ Matching right (buyer can match)

Break fee: $___M (___% of price)
Circumstances triggering break fee:
☐ _________________________________
☐ _________________________________

TIMELINE:
| Milestone | LOI Date | Our Target |
|-----------|----------|------------|
| LOI signed | | |
| DD complete | Day ___ | Day ___ |
| Definitive signed | Day ___ | Day ___ |
| Closing | Day ___ | Day ___ |

Timeline concerns:
☐ Too rushed (can't complete DD)
☐ Too long (exclusivity binds us)
☐ Gap to closing too uncertain
☐ Regulatory timeline unclear

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SECTION 4: CONDITIONS & CONTINGENCIES
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CONDITIONS TO CLOSE:
☐ Satisfactory due diligence
   Scope: ☐ Broad ☐ Specific areas
   Concern level: ___/10

☐ Financing contingency
   Type: ☐ Debt ☐ Equity ☐ Both
   Committed: ☐ Yes ☐ No ☐ Unclear
   Concern level: ___/10

☐ Regulatory approval
   Required: ☐ HSR ☐ Other: ___
   Risk level: ___/10
   Timeline impact: ___ weeks

☐ Key employee agreements
   Employees required: _______________
   Terms specified: ☐ Yes ☐ No
   Concern level: ___/10

☐ Material adverse change (MAC)
   Definition: ☐ Broad ☐ Narrow
   Carve-outs: _______________
   Concern level: ___/10

☐ Third-party consents
   Required: _______________
   Risk level: ___/10

☐ Board/shareholder approval
   Our side: ☐ Required ☐ Obtained
   Their side: ☐ Required ☐ Obtained

OTHER CONDITIONS:
☐ _________________________________
☐ _________________________________

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SECTION 5: REPS, WARRANTIES, INDEMNITY
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REPRESENTATIONS SCOPE:
Breadth: ☐ Standard ☐ Extensive ☐ Limited
Knowledge qualifiers: ☐ Yes ☐ No
Materiality qualifiers: ☐ Yes ☐ No

KEY REPS MENTIONED:
☐ Financial statements
☐ Tax matters
☐ Litigation
☐ Material contracts
☐ IP ownership
☐ Employee matters
☐ Environmental
☐ Compliance

INDEMNIFICATION:
Survival period: ___ months
Basket (deductible): $___M
Cap: $___M (___% of price)
Tipping vs. true deductible: ___

Special indemnities:
☐ Tax indemnity: ___ years
☐ Environmental: ___ years
☐ IP infringement: _______________
☐ Other: _______________

R&W INSURANCE:
☐ Buyer proposes R&W insurance
☐ Cost allocation: _______________
☐ Impact on indemnity cap: _______________

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SECTION 6: EMPLOYEE MATTERS
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RETENTION REQUIREMENTS:
| Person | Required | Terms Specified |
|--------|----------|-----------------|
| CEO | ☐ Yes ☐ No | |
| CFO | ☐ Yes ☐ No | |
| CTO | ☐ Yes ☐ No | |
| Other: | ☐ Yes ☐ No | |

EQUITY TREATMENT:
Unvested options: ☐ Accelerate ☐ Convert ☐ Forfeit
Vested options: ☐ Cash out ☐ Convert
Restricted stock: _______________

EMPLOYMENT TERMS:
Employment agreements required: ☐ Yes ☐ No
Non-compete terms: ___ years, $___ radius
Non-solicit terms: ___ years
Change of control provisions: _______________

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SECTION 7: OVERALL ASSESSMENT
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| Term Category | Rating | Priority |
|---------------|--------|----------|
| Valuation | /10 | |
| Structure | /10 | |
| Earnout | /10 | |
| Exclusivity | /10 | |
| Conditions | /10 | |
| Indemnity | /10 | |
| Employee | /10 | |
| **OVERALL** | **/10** | |

DEAL-BREAKER ISSUES:
☐ _________________________________
☐ _________________________________

NEGOTIATION PRIORITIES:
1. _________________________________
2. _________________________________
3. _________________________________

RECOMMENDATION:
☐ Accept as-is
☐ Counter with modifications
☐ Significant negotiation required
☐ Walk away / seek alternatives

LOI Comparison Matrix (Multiple Bidders)

Term	Buyer A	Buyer B	Buyer C	Our Preference
Total Price	$___M	$___M	$___M	Higher
Cash at close	$___M	$___M	$___M	Higher
Stock %	___%	___%	___%	Lower
Earnout	$___M	$___M	$___M	Lower
Earnout metric				Revenue
Escrow %	___%	___%	___%	Lower
Escrow term	___ mo	___ mo	___ mo	Shorter
Exclusivity	___ days	___ days	___ days	Shorter
DD timeline	___ days	___ days	___ days	Reasonable
Financing contingency	☐ Y ☐ N	☐ Y ☐ N	☐ Y ☐ N	No
Regulatory risk	H/M/L	H/M/L	H/M/L	Low
Indemnity cap	___%	___%	___%	Lower
Survival period	___ mo	___ mo	___ mo	Shorter
Key employee requirements				Flexible
OVERALL RANK	#___	#___	#___

LOI Negotiation Playbook

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LOI COUNTER-NEGOTIATION GUIDE
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NEGOTIATION STRATEGY:

PREPARATION:
☐ Know your walk-away points
☐ Rank issues by importance
☐ Understand buyer's priorities
☐ Prepare give-get tradeoffs
☐ Have alternatives if possible

APPROACH:
☐ Start with most important issues
☐ Bundle requests strategically
☐ Give to get (trade low for high)
☐ Don't show all cards at once
☐ Maintain positive relationship

COMMON COUNTER POSITIONS:

ON PRICE:
"We believe the business warrants $___M based on..."
"Our comparable analysis shows..."
"We need to protect shareholder value..."

ON EXCLUSIVITY:
"We're comfortable with ___ days given..."
"We propose milestone-based extensions..."
"___ days should be sufficient for DD..."

ON EARNOUT:
"We'd prefer more certainty at close..."
"If earnout required, we need control provisions..."
"The metrics should be..."

ON CONDITIONS:
"We need clarity on what 'satisfactory DD' means..."
"The financing contingency needs commitment..."
"MAC definition should exclude..."

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NEGOTIATION PRIORITIES FRAMEWORK
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TIER 1 - NON-NEGOTIABLE (Must Have):
☐ _________________________________
☐ _________________________________
☐ _________________________________
Why: These are deal-breakers if not met

TIER 2 - IMPORTANT (Strongly Prefer):
☐ _________________________________
☐ _________________________________
☐ _________________________________
Why: Significant value at stake

TIER 3 - TRADEABLE (Nice to Have):
☐ _________________________________
☐ _________________________________
☐ _________________________________
Why: Can trade for Tier 1/2 concessions

TIER 4 - CONCESSIONS (Can Give):
☐ _________________________________
☐ _________________________________
Why: Low value to us, may matter to buyer

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RED FLAGS IN LOIs
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VALUATION RED FLAGS:
☐ Heavy earnout (>30% of total value)
☐ Aggressive earnout targets
☐ Illiquid stock with no registration
☐ Large escrow (>15%)
☐ Vague working capital mechanism
☐ "Subject to adjustment" language

EXCLUSIVITY RED FLAGS:
☐ Excessive period (>60 days)
☐ No break fee
☐ Broad no-shop/no-talk
☐ Punitive matching rights
☐ Automatic extensions

CONDITION RED FLAGS:
☐ Broad financing contingency
☐ Undefined "satisfactory DD"
☐ One-sided MAC clause
☐ Extensive third-party approvals
☐ Board approval not obtained

STRUCTURAL RED FLAGS:
☐ Extensive key employee requirements
☐ Unusually broad indemnification
☐ Long survival periods
☐ Low caps with carve-outs
☐ Vague integration commitments

IF RED FLAGS PRESENT:
☐ Don't panic - most are negotiable
☐ Prioritize issues to address
☐ Understand buyer's real concerns
☐ Propose alternatives
☐ Consider walking away if fundamental

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