Signing a letter of intent feels like the finish line. A buyer has made an offer, the owner has accepted it in principle, and exclusivity begins. In reality, it is the start of the most demanding phase of a sale. This is when due diligence intensifies, the purchase agreement is negotiated, and the buyer, now without competition, has the most leverage.
Experienced advisers know that value is most often lost between the letter of intent and closing. The good news is that most of the causes are predictable.
Why the balance of power shifts
Before exclusivity, buyers compete. After it, the seller has usually stopped talking to other parties, the team is tired, and everyone is invested in completing the deal. Any issue the buyer finds can be used to revisit price or terms, and the seller's alternative, starting again, looks unappealing.
The aim is not to prevent all renegotiation, which is sometimes justified, but to avoid unnecessary erosion.
Mistake 1: A vague letter of intent
A letter of intent that states only a headline price leaves too much open. Key terms that are often worth agreeing in principle before exclusivity include:
- How the price is calculated, including the treatment of cash, debt and working capital
- The scope and structure of any deferred or conditional payments
- The owner's post-closing role
- Key conditions to closing, such as financing or approvals
- The length of exclusivity
Each item left undefined becomes a negotiation later, when leverage has shifted.
Mistake 2: Exclusivity that is too long
Long exclusivity periods give buyers time, and time tends to favour the party with options. A shorter period with defined milestones keeps the process moving. Extensions can be granted if progress is good.
Mistake 3: Unprepared due diligence
When the seller is slow to provide information, or when answers are inconsistent, buyers become cautious and sometimes suspicious. A well-organised data room, prepared before the letter of intent, and a small, responsive team to answer questions, signal a company that is well run.
Mistake 4: Working capital surprises
Many purchase agreements include a mechanism that adjusts the price based on the level of working capital at closing compared to a normal level. If that normal level is not discussed early and grounded in historical data, it can become a significant and unexpected price reduction. Understand your working capital patterns, including seasonality, before negotiating this point.
Mistake 5: Letting performance slip
Buyers watch monthly results closely during due diligence. A weak month, especially if it was not anticipated, can trigger renegotiation. Owners who are absorbed in the transaction can unintentionally take their eye off the business. Keeping performance on track is one of the most effective ways to protect the price.
Mistake 6: Underestimating the purchase agreement
The share or asset purchase agreement contains warranties, indemnities, limitations and conditions that determine how much risk the seller retains after closing. These provisions can matter as much as price. Experienced legal counsel is essential, and owners should understand the commercial implications of the main protections rather than leaving everything to lawyers. Options such as warranty and indemnity insurance may be relevant in some transactions; your advisers can tell you whether they apply.
Mistake 7: Negotiating everything personally
Owners who negotiate directly with the buyer on every point risk damaging the relationship they will rely on after closing. Using an adviser as the primary negotiator allows the owner to stay constructive and preserve goodwill.
A practical framework for this phase
| Area | Before LOI | During exclusivity |
|---|---|---|
| Terms | Agree key principles in writing | Track every requested change against them |
| Information | Data room largely complete | Respond quickly and consistently |
| Performance | Realistic forecast shared | Monthly results in line with forecast |
| Working capital | Historical analysis ready | Negotiate the reference level with data |
| Legal | Counsel appointed | Focus on risk allocation, not only wording |
| Team | Small, informed internal group | Protect their time and keep morale steady |
When renegotiation is legitimate
Sometimes due diligence reveals something genuinely new and material. In that case, a fair adjustment may be appropriate, and a buyer who raises it openly and with evidence is behaving reasonably. The aim is to distinguish between legitimate findings and tactical pressure, and to respond to each accordingly. Preparation gives the seller the information to tell the difference.
How LXN works with owners
We prepare owners for the post-LOI phase before it starts, so that terms are clear, information is ready and the business keeps performing. During exclusivity, we manage the process and the negotiation, allowing the owner to focus on running the company and protecting the relationship with the future owner.
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