Key takeaways
- LOI signing begins exclusivity, you cannot negotiate with other buyers during this window
- Buyer diligence is the phase that most often reprices deals downward
- Management time commitment during diligence is routinely underestimated by first-time sellers
- Quality of earnings, legal review, and management interviews all happen concurrently
What the LOI actually commits you to
An LOI is not a binding purchase agreement. Most of it is non-binding: the price, the structure, the timeline, the conditions. What is typically binding is the exclusivity clause and sometimes a no-shop provision. From the moment you sign, you cannot solicit or accept competing offers from other buyers for the exclusivity period, usually 60 to 90 days.
This is the leverage shift. Before LOI, you have competition. After LOI, the buyer has exclusivity and the negotiating dynamic changes. Everything that happens during diligence happens in an environment where you cannot credibly threaten to walk to another buyer without abandoning the deal entirely.
The most important pre-LOI negotiation is the exclusivity period length. Pushing for 45 days instead of 90 days is entirely reasonable on a well-prepared business. Buyers who resist a shorter exclusivity window are signaling they expect the diligence process to be difficult, which itself is useful information.
The diligence phase: what buyers are actually doing
Buyers in a middle market deal typically run three workstreams simultaneously during exclusivity: financial diligence, legal diligence, and commercial/operational diligence. Each involves different advisors and produces different information requests. All three happen at the same time.
Post-LOI diligence timeline
Week 1-2
Data room build or expansion; quality of earnings firm engaged by buyer; initial information request lists delivered
Week 2-4
QoE firm reviews financials; legal counsel reviews contracts, IP, litigation, cap table; operational questions begin
Week 3-6
Management presentations; customer reference calls; QoE draft delivered
Week 5-8
QoE findings reviewed; legal diligence issues surfaced; R&W insurance underwriting begins
Week 7-9
Working capital peg negotiated; purchase agreement drafted and negotiated; final terms confirmed
Week 8-10
Signing; regulatory filings if required; closing conditions satisfied
Week 10-12
Closing; funds wired; transition begins
The management presentation is often the most underestimated component. A buyer will want to meet the full leadership team, not just the founder, and assess whether the business can run without you. A management team that cannot answer questions about operations, customers, or financials without deferring to the owner signals owner dependency, which reprices the deal.
What kills deals between LOI and closing
Most deals that die after LOI do not die because the buyer discovered something outright fraudulent. They die for more mundane reasons: QoE findings that reduce EBITDA below the level the LOI price assumed, legal diligence issues that create indemnification exposure, working capital disputes, or sellers who become emotionally exhausted and accept unfavorable terms rather than fight.
Deals that reprice after LOI due to diligence findings: approximately 35-40%
Average price reduction from LOI to close when repricing occurs: 8-12% of enterprise value
Most common cause: QoE adjustments to add-backs the seller included but the buyer rejected
Second most common: working capital peg mechanics, sellers underestimated the normalized target
Third most common: legal issues, undisclosed litigation, customer contract assignment provisions, IP ownership gaps
The repricing conversation is where having an experienced sell-side advisor earns its fee. A buyer who finds a legitimate issue will use it to renegotiate price. An advisor who has seen similar issues across dozens of transactions knows which findings are legitimately price-affecting and which are negotiating tactics. First-time sellers, negotiating alone against experienced PE deal teams, typically give back more than they need to.
How to protect your position during exclusivity
The best protection against post-LOI repricing is pre-LOI preparation. A seller who has already run a quality of earnings review, documented their add-backs with supporting evidence, cleaned up legal issues, and stress-tested their working capital normalization is a much harder target for diligence-driven price reduction.
During diligence itself, the most important discipline is response speed. Information requests that sit unanswered for days signal disorganization and give buyers reason to extend the exclusivity period or create doubt about what the delay is hiding. A well-organized data room and a clear single point of contact for diligence requests are operational choices that have real deal consequences.
Deal-protective actions: pre-LOI vs. during exclusivity
Frequently asked questions
What is a quality of earnings report?
A QoE is an independent accounting analysis of a company's earnings, validating that the EBITDA presented in marketing materials reflects actual normalized earnings. Buyers commission their own QoE during diligence. Sellers who commission their own QoE before going to market can identify and address findings before they affect pricing.
Can a buyer walk away after signing an LOI?
Yes. Most LOIs are non-binding except for exclusivity and confidentiality provisions. A buyer can terminate based on unsatisfactory diligence findings. This is why LOI price is not the same as closing price, and why pre-LOI preparation matters.
What is a management presentation in M&A?
A management presentation is a formal meeting between the seller's leadership team and the buyer's deal team and operating partners. It typically covers the business overview, financial performance, customer relationships, and management team depth. The buyer is assessing whether the team can run the business post-close without the founder.
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