Understanding The Buyer’s First Move: The Letter of Intent

By Tully Ryan, M&A Advisor

Your business is on the market—ideally you’ve worked with a broker or M&A advisor on your exit plan, determined your valuation, identified your goals for the sale, and developed a exit strategy.

Then you receive a Letter of Intent, or LOI.

This is when things get real. An LOI is the buyer’s opening move. It sets the price, structure, exclusivity, diligence timeline, and rules of engagement.

The LOI sets the trajectory. If you know how to read it, the LOI becomes the best early indicator of certainty to close—how likely the deal is to move from offer to closing.

Miss the important signals and you risk getting blindsided: a headline number that evaporates in diligence, a “sure thing” buyer who can’t get financing approved, or a deal that drags on until momentum dies.

Read the LOI like a pro—and you gain a critical advantage.

The most important variable revealed in an LOI is the type of buyer and how they value your business.

Why does the type of buyer matter? Because the LOI is the start of negotiations, and understanding what matters most to your buyer is essential.

Strategic buyers, private equity firms, and entrepreneurs all see your company through different lenses. What they prioritize when placing a value on your business should guide how you and your advisor interact with the buyer and negotiate terms.

Let’s break down a few buyer profiles and how each mindset shows up in an LOI:

Strategic Buyers

Strategics sometimes pay a higher-than-normal multiple. From the outside, it may seem irrational—but for them, it’s about synergies. They might be buying to consolidate competition, expand their customer base, or bolt your products onto their platform.

• • • What shows up in the LOI?
      Heavy cash at close with an owner transition period and short exclusivity windows (30–60 days). Often aggressive working capital targets and indemnification caps. The LOI reads like a fast-track to closing—provided the strategic fit is right.

Private Equity Buyers

PE firms act as disciplined financial engineers. Their model counts on operational improvement over 7–10 years, then a higher-multiple exit. PE firms can pay the highest multiples but often split the purchase price across cash, earnouts, and equity rollovers to keep the owner engaged.

• • • What shows up in the LOI?
      Headline offer price broken into cash, earnouts, and equity rollovers. Detailed definitions around EBITDA adjustments and working capital. A structure designed to align you with their growth plan. Sellers should pay close attention to how earnouts are measured and what governance rights accompany a rollover stake.

Individual Entrepreneurs

These are individuals looking to own and operate a single company. They value businesses that align with their experience, interests, and income needs (SDE—seller’s discretionary earnings). They may not match strategics or PE on price, but they often win sellers’ trust by focusing on legacy and continuity.

• • • What shows up in the LOI?
      Simpler structures, usually more reliant on SBA financing and seller notes. Longer diligence timelines. But also a personal commitment: they’re buying a career, not just an asset. For many owners, that matters as much as price.

I always let my clients know what type of buyer is most likely to be interested in their business so they have a clearer idea of what to expect in the LOI. Additionally, by anticipating what a buyer will prioritize, we can position the business to align with their goals and tailor the CIM to answer the right questions.

Recently, a business owner engaged me after receiving an unsolicited offer from a Private Equity firm. When an owner receives an unsolicited offer, they might think they don’t need a broker or M&A advisor, but as my client can attest, the negotiations quickly became complex—especially around the earnout structure and rollover equity. He originally engaged me for a thorough valuation, and it soon became clear he needed his own advisor guiding the deal and sitting on his side of the table.

Remember, Private Equity firms like the one acquiring his business have their deal team; as a business owner selling your biggest asset, you need your team. It is critical to work with an advisor who looks past the price and negotiates terms that ensure the deal structure meets your goals. Furthermore, managing a business transaction from LOI to closing involves many players and a lot of moving parts. Even in the best scenarios—like the one I’m currently negotiating with motivated, reasonable parties—it still takes an experienced team to move from LOI to a successful transaction.

So before you respond to an LOI, sit down with your advisors, dissect it carefully, and make sure you understand your buyer’s priorities so you can negotiate accordingly.

If you have been approached to sell your business, you are planning your exit, or you simply want to learn more about the process and your business’s value, please reach out by phone or email to schedule a confidential, no-pressure conversation (t.ryan@murphybusiness.com or 252-339-6471).

After all, this is your business and your legacy—it should be your deal.

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