What a letter of intent means when you sell

A letter of intent — sometimes called heads of terms — is the document that turns a conversation into a process. For most owner-managed firms in the UK and the US it is not a binding promise to buy or to sell. It is a written shape of the deal: price, structure, what is included, and the period in which one buyer will look at the business alone. Signing it feels like progress. It is also the moment you give something away.

What is binding today

Read the letter in two layers. The commercial terms — price, earn-out, what assets or shares are sold, how working capital and debt are treated — are usually stated to be subject to contract. They can still move in diligence. The parts that are often binding from the day you sign are narrower, and they matter more than owners expect:

• Exclusivity: you agree not to talk to other buyers for a defined period.
• Confidentiality: both sides keep the process, and the information exchanged, private.
• Costs: who pays their own advisers, and whether any break fee exists.
• Governing law and how a dispute about the letter itself would be handled.

If the letter does not say, in plain words, which clauses are binding and which are not, do not assume the friendly version. Ask for that sentence before you sign.

The price is a bridge

The number on the first page is usually enterprise value, not the cheque. A useful letter says whether that figure is cash-free and debt-free, what sits in the draft net-debt schedule, and how completion accounts or a locked box will measure cash, debt, and working capital. A headline multiple with those lines left blank is not yet a price. It is an invitation to renegotiate once you are exclusive and your leverage is thinner.

The clock you start

Exclusivity is the clock. In return for taking the business off the market, you should know how long the period is, what the buyer must do inside it, and what happens the morning it ends. Thirty to sixty days is common for an established firm with orderly records. An open-ended lock, or a long one attached to a price that can still be rewritten, is rarely in the seller’s interest. About half of processes that enter exclusivity do not complete. The letter should make it ordinary to walk away if the timetable slips or the deal changes in a material way.

When the next letter arrives, read it in three passes. First: what is binding today? Second: what is the real price bridge, not only the headline? Third: what clock are you putting yourself on, and what do you get for that clock? If those answers are fuzzy, ask for a revision before exclusivity starts — not after.

If you are weighing a confidential approach and want a second view of whether an LOI’s exclusivity and price shape are reasonable for an owner-managed firm — without briefing the shop floor — a short private conversation is usually enough. Getting the letter right is cheaper than unwinding a bad exclusivity period.