The Letter Of Intent: A Critical Transaction Document

As part of negotiating the purchase of a business, the buyer and seller will enter into a letter of intent (LOI) that sets out the framework for a deal. While the terms of the deal as set out in the LOI are non-binding, the LOI does bind the buyer and seller with respect to:

This second point is critical. Sellers tend to have the upper hand in negotiations up to the point that they give exclusivity to one buyer. Once a buyer is afforded exclusivity, they have the negotiating advantage. The dynamics of the negotiations between the buyer and seller can be graphically depicted in what is sometimes called the "buyer-seller advantage curve."