Behind the LOI: Reading a Buyer’s True Intent

By David Barnett, Vice Chairman, William & Wall

For many first-time sellers, the Letter of Intent—commonly referred to as the LOI—feels like the moment when uncertainty gives way to clarity. After months of preparation, buyer outreach, calls, and preliminary diligence, the LOI arrives as a concise summary of economics and major terms. It is natural to read it as a straightforward document. Yet in middle-market M&A, the LOI requires more interpretation than its length suggests.

An LOI is not a purchase agreement. It is a preview of how the buyer analyzes risk, how they expect the transaction to unfold, and how they are likely to behave once exclusivity begins. It compresses a future 50–100-page agreement into six or eight pages, leaving sellers to infer detail, context, and intent from limited wording. Over the past twenty-five years advising founder-led companies, I’ve seen that seasoned sellers and advisors read LOIs differently than first-timers. They pay attention to structure, definitions, omitted detail, and the areas where buyers choose to be specific—or vague.

Understanding the LOI is not about anticipating conflict. It is about recognizing how a buyer views the business and the transaction, and how those views may shape the months ahead.

I. Beyond Valuation: What the LOI Actually Communicates

The first section sellers turn to is almost always valuation. It is understandable: price is visible, memorable, and easy to compare. But valuation is only one element of a much broader equation. Buyers communicate priorities through how they propose to structure the deal, not just how much they are willing to pay.

Key sections of an LOI typically outline:

• whether the deal is structured as an asset or stock purchase
• the balance between cash at close and contingent components
• expectations around working capital
• the high-level indemnification framework
• expectations tied to rollover equity
• transition timelines
• employment assumptions
• expectations for the seller’s role post-close

Each of these terms, even when summarized briefly, reflects a different dimension of the buyer’s assessment of risk and value. A seller who focuses only on price may overlook signals that matter far more in practice—certainty, timing, governance, and the anticipated path to closing.

II. Why LOIs Look Generic, but Function Strategically

Most buyers, whether private equity firms or strategic acquirers, rely on templates that reflect industry norms. At first glance, these templates look interchangeable. Non-compete ranges, indemnity caps, working-capital language, and exclusivity provisions often appear similar across buyers.

The consistency is intentional. Templates create efficiency. But within that structure, buyers make choices about wording, specificity, and conditions. These choices are where intent becomes clearer.

A buyer who follows market norms—balanced exclusivity periods, standard indemnity levels, customary working-capital definitions—often signals a desire to move through the process efficiently. A buyer who introduces unusually long exclusivity periods, outsized escrow expectations, or heavily conditional language may be indicating internal uncertainty or a desire to maintain flexibility to renegotiate later.

The LOI’s brevity is not the issue. The choices within that brevity are what matter.

III. The Provisions Founders Tend to Overlook

Founders encountering an LOI for the first time often focus on the headline economics and skim past provisions that shape their post-close life. These sections may be brief, but they deserve close attention.

1. Employment and Transition Expectations

These provisions often outline the anticipated length of post-close involvement, the general nature of the seller’s role, and compensation ranges. Even a short paragraph can indicate whether the buyer views the founder as essential to future operations or whether they anticipate a faster transition.

2. Non-Compete and Non-Solicit Frameworks

At LOI stage, these are summarized at a high level—duration, geographic scope, and broad expectations. They can vary widely across industries. Excessively broad language here is often a sign that further discussion will be needed.

3. Treatment of Key Employees

Some buyers address leadership continuity, retention bonuses, or the need for non-competes from critical team members. These points reveal how the buyer thinks about preserving operational stability.

4. Working Capital

Often captured in a sentence or two, this concept has significant implications for proceeds. The LOI may not contain the full methodology, but it typically reflects the buyer’s overall posture toward adjustments.

Founders tend to view these items as secondary at LOI stage. Advisors know they become central during legal drafting and can materially affect the seller’s experience.

IV. Why The LOI Requires Careful Interpretation

A six- or eight-page document cannot capture every detail of a transaction. As a result, buyers use concise language to set anchors—anchors that carry forward into legal drafting. Ambiguity may seem harmless, but once exclusivity begins, ambiguities often favor the buyer’s interpretation.

This is why precise reading matters. Sellers benefit from clarity on topics such as:

• timelines and milestones
• the scope of diligence
• closing conditions
• definitions tied to financial metrics
• the interplay between rollover equity and governance

Sellers who enter exclusivity without understanding these items often spend the next several months reacting rather than negotiating.

V. “Market Terms” Depend on Context

Sellers frequently rely on the assumption that the LOI reflects industry norms. Yet “market” is not universal; it varies meaningfully across sectors and company types. For example:

• Non-compete ranges differ widely across manufacturing, healthcare, consumer services, and technology.
• Escrow norms are not the same in asset-heavy businesses as in recurring-revenue models.
• Working-capital expectations can look different depending on seasonality and revenue patterns.

Without context, sellers may see a provision that looks familiar but is actually atypical for their specific industry. Advisors with experience across transactions provide the necessary frame of reference.

VI. How the LOI Anticipates the Buyer’s Approach to Diligence

The LOI often foreshadows the rhythm of diligence. A buyer who presents clear, balanced terms usually brings that same approach to the next stage. Conversely, a buyer who layers in contingencies or leaves key terms vague may later introduce additional hurdles.

Patterns that often become visible include:

• the degree of preparation the buyer brings into discussions
• the alignment between valuation and structure
• how much time and attention will be required of the seller
• the likelihood of prolonged negotiation around specific terms

These observations do not predict outcomes, but they help set expectations for the tone and tempo of the process.

VII. How Sellers Can Use the LOI Effectively

For founders preparing to enter exclusivity, the LOI is a tool for understanding the buyer’s perspective. A few guiding considerations include:

• how the buyer proposes to allocate risk
• whether employment expectations align with the seller’s goals
• whether non-compete and non-solicit frameworks are proportionate
• whether working-capital terms are defined clearly enough to prevent misunderstanding
• whether exclusivity is long enough for diligence, but not so long as to disadvantage the seller
• whether the buyer’s language fits industry norms
• whether the LOI feels balanced in its treatment of both parties

Reviewing these items carefully helps the seller shape negotiation strategy and anticipate where further discussion will be needed.

Conclusion

At William & Wall, we help founders interpret LOIs not only for what they say, but for what they imply about structure, expectations, and the likely path ahead. The LOI is the first formal expression of how a buyer views the transaction. Reading it with precision gives sellers a clearer sense of alignment, potential friction points, and the work required to move from early intent to a completed transaction.

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William & Wall helps business owners execute with both urgency and accuracy. Based in Scottsdale, Arizona and serving clients across the U.S., our firm specializes in lower middle market M&A—guiding sellers from readiness to close with discipline, discretion, and relentless focus on value.

If you’re considering a sale in the next 12–24 months, now is the time to prepare. Because in M&A, the winners are those who can move fast—because they’ve prepared well.

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