Letter of Intent (LOI)
A document expressing serious interest in acquiring a business and outlining proposed transaction terms.
Full Definition
A Letter of Intent (LOI) is a written document from a prospective buyer expressing interest in acquiring a business and setting out the principal terms on which they propose to transact. In UK practice, this is often called Heads of Terms.
Purpose of an LOI:
- Demonstrates serious buyer intent
- Establishes framework for negotiations
- Often triggers exclusivity period
- Authorises due diligence
- Sets deal timetable
Typical LOI contents:
- Indicative purchase price
- Transaction structure (shares vs assets)
- Payment terms (cash, deferred, earn-out)
- Key conditions and assumptions
- Due diligence requirements
- Exclusivity request
- Confidentiality provisions
- Anticipated timetable
- Binding vs non-binding provisions
LOI process: 1. Initial discussions and information exchange 2. Buyer submits LOI based on preliminary review 3. Seller reviews and negotiates terms 4. Agreed LOI signed, exclusivity granted 5. Formal due diligence begins 6. Definitive agreements negotiated
Best practice: Keep LOIs relatively high-level to maintain flexibility. Over-detailed LOIs can create false expectations and impede subsequent negotiations.