Key takeaways
- The highest LOI price is the right choice in roughly half of competitive processes. In the other half, a lower-priced offer with better structure, higher certainty, or a more aligned buyer produces a better outcome.
- Deal certainty, the probability that an offer closes at or near the stated price, is the most underweighted factor in LOI comparisons. A $15M offer with 70% close probability is worth less than a $13M offer with 95% close probability.
- Rollover equity and earnout provisions can make headline prices meaningfully misleading. An offer with $14M cash and a $2M earnout is not equivalent to an offer with $16M cash.
- Exclusivity length directly affects optionality. A 90-day exclusivity period in a poorly structured offer locks the founder out of the market for three months. Exclusivity should be proportional to the complexity of the transaction.
- The best offer is the one that best matches the founder's specific priorities: maximum liquidity, post-close role, employee retention, brand preservation, or speed to close.
2–4
Typical number of LOIs a well-run competitive process generates
30–40%
Of founders who receive multiple LOIs choose the highest price offer
15–25%
Difference in close rate between well-structured and poorly structured LOIs
60–90 days
Typical exclusivity period attached to an LOI
A competitive sale process, when run well, creates a moment where the founder must choose between two or three serious offers. That decision, which happens under time pressure and emotional weight, is one of the most consequential financial decisions the founder will make.
The instinct is to choose the highest number. That instinct is correct often enough that it persists as a default, but it fails in a significant minority of cases because the highest number is not always the best offer. Structure, certainty, and fit matter alongside price, and sometimes they matter more.
The five dimensions of an LOI comparison
The five dimensions to evaluate in every LOI
1. Net proceeds at close
Not headline price, but the cash the founder actually receives at closing after debt payoff, transaction fees, tax, and any required reinvestment. A $16M offer with $3M of required rollover equity delivers $13M of cash at close, the same as a $13M all-cash offer at the same debt and fee load.
2. Deal certainty
The probability the offer closes at or near the stated price. Factors: is the buyer PE or strategic? Do they have committed financing or is a financing contingency present? Does the buyer have a track record of closing at the LOI price? What is the due diligence scope, and how likely are material downward adjustments?
3. Contingent consideration quality
If the offer includes an earnout, how achievable is it under the buyer's likely operating plan? If it includes a rollover, what is the realistic exit valuation for that equity? Strip earnout and rollover to worst-case values when comparing to all-cash offers.
4. Post-close terms
Non-compete length and scope, employment or consulting agreement terms, indemnification cap and basket, and escrow amount and duration. These terms affect what the founder can do after closing and how much of their proceeds are at risk.
5. Buyer quality and fit
The buyer's operating approach, cultural alignment, employee retention plans, and investment thesis fit. These determine the post-close experience for the founder, the employees, and the customers.
Building a side-by-side comparison
A structured comparison normalizes all five dimensions across each offer so the founder can see a true apples-to-apples picture. The goal is not to produce a single score but to make explicit what each offer actually delivers versus what it appears to deliver.
Metric
Buyer A|Buyer B|Buyer C
Headline price
$15.5M|$14.2M|$13.8M
Required rollover
$2.0M|$0|$0
Earnout potential
$1.5M (conditional)|$0|$1.0M (conditional)
Net cash at close (estimated)
$11.8M|$12.1M|$11.9M
Financing contingency
Yes|No|No
Estimated close probability
70%|92%|90%
Non-compete scope
Broad, 4 years|Standard, 3 years|Standard, 3 years
Indemnification cap
20% of price|15% of price|12% of price
Escrow amount and duration
$2.0M, 24 months|$1.2M, 18 months|$1.0M, 18 months
Post-close employment
Required 18 months|Optional 12 months|Optional 6 months
Buyer type
PE fund (fund life: 3 years)|Strategic acquirer|PE fund (fund life: 6 years)
The highest headline price (Buyer A at $15.5M) delivers the lowest estimated net cash at close ($11.8M) after accounting for the rollover requirement. The lowest headline price (Buyer C at $13.8M) delivers comparable net cash with fewer post-close obligations. This is why headline price comparisons mislead.
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Different founders have different priorities, and the weighting of each dimension should reflect the founder's specific situation. A founder who needs maximum immediate liquidity should weight net cash at close heavily. A founder who cares deeply about employee outcomes should weight buyer quality and post-close plans heavily.
Weighting by founder situation
Situation: Maximum immediate liquidity needed (personal financial needs, co-owner alignment)
Weight heavily: Net cash at close, deal certainty; minimize rollover and earnout in the preferred offer
Situation: Founder staying post-close, wants ongoing role
Weight heavily: Post-close employment terms, buyer operating style, management autonomy
Situation: Employees and culture matter
Weight heavily: Buyer quality and stated integration plan, track record with prior acquisitions, brand preservation
Situation: Speed is a priority (personal or competitive reason)
Weight heavily: Deal certainty, financing certainty, due diligence scope; avoid complex structures
Situation: Maximizing total value over time (willing to take rollover risk)
Weight: Rollover potential, PE fund quality, value creation track record, fund life remaining
The worst outcome in an LOI comparison is choosing based on headline price when the founder's actual priorities are in a different dimension. An honest conversation between the founder and their banker about what really matters, before the offers arrive, produces a better decision than a reactive comparison after offers are on the table.
Negotiating after the comparison
A structured comparison also creates leverage for negotiation. If the preferred offer is Buyer B but Buyer A has a higher price, sharing (tactfully, through the banker) that the offer is competitive on structure but trailing on price can produce a price improvement from Buyer B without requiring the founder to accept Buyer A's terms.
The banker's role in this phase is to create competitive tension without misrepresentation. A banker who falsely implies a competing offer exists when it does not is creating legal and relationship risk. A banker who accurately conveys that the process is competitive and that terms matter alongside price is doing their job.
Best-and-final processes, where all bidders are invited to submit their highest and best offer by a specified date, are effective when prices are close and the founder has a clear preference for one buyer. They are less effective when the gap is structural rather than price-based, because they invite buyers to improve price without improving the terms that actually matter.
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Disclaimer: Financial figures and case studies in this article are illustrative, based on representative middle market assumptions, and are not guarantees of outcome. Statistical references are drawn from cited third-party research; individual transaction and operational results vary based on business characteristics, market conditions, and deal structure. This content is for informational purposes only and does not constitute legal, financial, or investment advice. Consult qualified advisors for guidance specific to your situation.
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