Do’s and Don’ts Once a Letter of Intent is Signed

By Jennifer Mailhes, CPA, Managing Director

When it comes to the merger or acquisition of your business, the letter of intent (LOI) plays a critical role in the success of the overall transaction. Although LOIs provide a framework of the deal, it does not mean it is a closed agreement once signed, and internal and external factors can often derail the M&A process.

Understanding LOIs

An LOI provides an outline of the initial agreement between the buyer and seller, including the confidentiality, structure of the proposed transaction (such as whether it is an asset or stock purchase), conditions that must be satisfied, purchase price or payment terms, assumed liabilities and more. As a seller, you typically want your LOI to cover as many of the important deal terms as possible before signing.

Once a signed LOI is in place, the transaction enters the due diligence process, which is also typically an exclusive period where the seller is unable to negotiate with other buyers. The overall due diligence process can be extensive, and things can change from the initial LOI both in structure and purchase amount as more company information is exchanged and findings are made.

If the due diligence process goes well and there are no surprises, then there will likely be no changes to the LOI. However, for closely held businesses, it’s common for something to arise due to the level and detail of information being exchanged and reviewed. Most of these findings don’t impact the deal structure, but there are some cases where it can.

Do’s and Don’ts

Doeren Mayhew Capital Advisors highlights the key do’s and don’ts of your business once an LOI is signed.


  • Keep running the business as usual: Sellers should continue running the business as they would do if a sale wasn’t taking place. Failing to do so can not only cause the buyer future business issues, but it can also harm your overall value.
  • Document information shared: Be sure to have a way to track all the data and documentation shared during the due diligence process, if possible. This will help easily reference these items should additional questions arise and have the information readily available for future transactions.
  • Keep it confidential: Transaction details should not be disclosed to anyone outside of key management involved in the process until the deal has been finalized. If employees learn about the deal without any details disclosed, it can create a lot of worry about their future with the company, changes in compensation, working with new leadership and more. This may ultimately begin to impact profitability, increase turnover (which is bad for the buyer) and create additional work for leadership to mitigate the situation.

Additionally, should the deal not close, the seller has now harmed the value of the business they still own. It’s also important to keep in mind that any shareholder or member of management within the company can also violate the securities law by discussing the transaction if either party is publicly traded, which could lead to penalties or fines.


  • Lose focus on profitability: In a transaction process, typically pre-LOI and during due diligence, the deal team will present current and forecasted earnings before interest, taxes, depreciation and amortization (EBITDA) to help ensure the seller receives the price originally offered. Ideally, the seller will meet or exceed those numbers. However, distracted leadership and personnel often prevent this from happening. In the long run, if the deal is successful for the buyer, they are far less likely to get too concerned about post-closing issues.
  • Spend the money: Keep in mind, the deal isn’t officially closed until the cash hits your bank account. There are instances where last-minute decisions may delay or even cancel the transaction, such the buyer wanting to revisit the terms or withdrawing from the deal, changing the closing date or other special circumstances. Again, continue running your business as usual and managing expenses appropriately to ensure your company remains profitable.

As you navigate these matters, be sure to consult with your deal team to help guide you throughout the process. To obtain assistance with your M&A transaction, contact our merger and acquisition advisors at Doeren Mayhew Capital Advisors today.

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