What is a letter of intent (LOI) when selling a business?

A letter of intent is the document that turns interest into a defined deal. After preliminary conversations and offers, a serious buyer sends an LOI (sometimes called a term sheet) that lays out the headline terms: the purchase price, the structure (how much cash at close versus seller note, earnout, or equity rollover), key conditions, the diligence timeline, and the exclusivity period. It comes before the long, binding definitive purchase agreement and gives both sides a shared blueprint to negotiate against.

An LOI is mostly non-binding by design — the price and structure are subject to confirmatory due diligence and a quality-of-earnings review, so they can still move. But a few provisions are usually binding the moment you sign: confidentiality, an exclusivity or 'no-shop' clause that stops you from talking to other buyers for a set window, and sometimes expense or break-up terms. That is why the LOI matters more than its 'non-binding' label suggests.

For sellers, the LOI sets the anchor and is where you have the most leverage. Once you sign and enter exclusivity, the buyer knows you have stopped shopping the deal, so your ability to push back drops. In private equity deals, expect roughly 60%-80% of the price as cash at close, with the remainder as equity rollover, a seller note, or an earnout — negotiate that mix, the diligence scope, and the exclusivity length before you sign, not after.

Re-trades happen: if diligence uncovers weaker margins or unsupported add-backs, the buyer may lower the offer. A clean set of books and a sell-side quality-of-earnings report reduce that risk. A PE process typically runs about four to six months from signed LOI to close, inside a full sale process of roughly six to twelve months. Always have an M&A attorney review the LOI before signing. DealSeam is not a traditional business broker; where there's a fit, it introduces owners to qualified buyers, and the buyer pays the success fee, so sellers pay nothing.