An LOI in M&A is presented as a step forward and is, for the seller, the moment the process stops being competitive. Signing means one counterparty and a clock, and the price in the document is subject to a diligence exercise that has not happened yet. Understanding what it costs is what makes the negotiation before signing worth having, and there are three things worth more than the headline number.
What signing costs: the tension that produced the price
Exclusivity removes the competition that made the buyer bid what they bid. For the next thirty to ninety days the seller has one counterparty who now knows there is nobody else, which is precisely the position from which price adjustments are proposed. The cost is real and it is rarely quantified in the room.
Negotiate the length first, not the price
Thirty days with a defined extension beats ninety with none, because the extension is a moment where both sides have to justify where they are. Tie it to milestones rather than to the calendar if the buyer will accept it: exclusivity that survives a diligence phase that has not started is a gift.
Negotiate what happens on a price change
The single most useful clause a seller can get is a requirement that any proposed change to price is accompanied by the specific diligence finding that caused it. It does not prevent a renegotiation and it makes an unjustified one visible immediately.
What binds, and what to read twice
Price and structure do not. Exclusivity, confidentiality and expenses usually do, and any break fee certainly does. Those clauses are short, they are at the back, and they are the ones a first-time seller skims on the way to the number at the front.
Questions people ask about loi m&a
What does signing an LOI cost a seller?
The competitive tension that produced the price, for thirty to ninety days, with one counterparty who now knows there is nobody else.
What should be negotiated before price?
The length of exclusivity, and what must accompany any proposed change to price. Both are worth more than a small movement on the headline.
Which parts of an LOI bind?
Exclusivity, confidentiality, expenses and any break fee. Price and structure are subject to diligence.