18 JUL 2025 / EXPERT INSIGHTS

Why Every M&A Deal Needs a Rock-Solid Letter of Intent

- Todd Steinberg

Summary

It is generated by AI

When undertaking a merger or acquisition (M&A), ensuring a clear Letter of Intent (LOI) – defining crucial terms such as price, timeline, structure, and ownership – can prevent the deal from falling through. Given that between 70–90 percent of US M&A deals fail to close, often due to unclear terms at the LOI stage, sufficient investment at this early stage can pay significant dividends later and safeguard the parties involved.

In M&A, deals can hit full speed quickly, and critical terms easily slip through the cracks. A clear Letter of Intent (LOI) captures headline items: price, structure, timeline, in writing before legal bills mount and due diligence digs deep. Nearly 70–90 percent of U.S. deals never reach closing, and roughly a quarter stall at the LOI stage when those basics are unclear. A precise LOI reduces that risk and provides a solid foundation for every step that follows.

Picture the LOI as a pre-game playbook: concise, non-binding, and built to surface potential deal-breakers early. Even a short email can guide attorneys drafting the purchase agreement and lenders weighing credit. Because most failed deals trace back to flimsy diligence and fuzzy LOIs, investing a little time up front pays outsized dividends later. Here’s a checklist to keep the process on course.

Cash, Clarity & the Game Plan

Show the sticker price. State the purchase amount in actual dollars, not in algebraic terms. “$4 million” needs no calculator, while “two times revenue” invites debate. Put the number in black and white so everyone lands on the same figure.
Define the goods. Explain exactly what changes hands. A line like “including all new and continuing business” keeps the whole book in the cart. If any clients are excluded, carve them out now, especially if the seller stays on post-closing.
Choose your vehicle. Are you buying stock (the legal entity) or assets (the book of business)? Tax treatment differs markedly, so lock the choice into the LOI and spare future headaches.

Capital, Contingencies & Clauses

Working-capital clarity. Specify who owns that first post-close month of cash. Typically, the seller keeps the revenue earned before closing. In a stock deal, note exactly how much cash remains in the company at closing.
Payment playbook. List the cash wired at closing, any seller-financed portion, and repayment terms. If the price can shift later—earn-outs, claw-backs—write the math in plain English.
Special provisions. Capture any one-off items: the seller’s transition duties, a short-term office lease, and promises to retain key staff. Putting quirks on paper prevents them from becoming surprises.

Deadlines, Disclaimers & Deal Security

Qualifiers up front. Spell out “subject-to” items, financing approval, revenue-multiple checks, or other conditions—so nobody is blindsided.
Diligence clock & no-shop lock. Give the seller a deadline to provide the documents and set a deadline for yourself to review them. Add an exclusivity clause: “Seller will entertain no other offers until [date].” It protects your time and wallet.
Finish-line calendar. Post a target closing date and note that extensions require mutual consent. A ticking clock helps maintain momentum and reduce stress.

Cover these checkpoints and your LOI becomes GPS for the deal—no wrong turns, just a smoother ride to closing.

Until next time…

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Why Every M&A Deal Needs a Rock-Solid Letter of Intent

Cash, Clarity & the Game Plan

Capital, Contingencies & Clauses

Deadlines, Disclaimers & Deal Security

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