Letter of Intent (LOIs), Exclusivity, and Deal Leverage in M&A

In most small and mid-market transactions, business owners treat the Letter of Intent as the deal — the moment when the real negotiation happens.

Once the LOI is signed, there is an expectation on both sides that the purchase agreement will reflect what was agreed, not reopen it.

That expectation is precisely what gives the LOI its power: it sets leverage, shapes the deal’s trajectory, and makes later changes difficult absent a good reason.

This post explains how letters of intent and exclusivity shape leverage in business sales, why LOIs are treated as “the deal” in practice, and when re-trades succeed or fail.

What an LOI Really Does

Most Letters of Intent are legally non-binding as to price and structure. But that legal characterization misses the point.

From a business perspective, the LOI is widely understood to describe the deal.

LOIs are typically binding only with respect to:

• confidentiality
• exclusivity (no-shop)
• governing law
• expenses

However, they nonetheless establish the economic and structural framework that both parties expect to carry through to closing.

Departures from LOI terms are therefore not treated as neutral revisions — they are treated as changes to an agreed understanding.

Why “Non-Binding” Doesn’t Mean “Flexible”

Once an LOI is signed, both sides invest time, money, and credibility in the transaction.

As a result:

• buyers expect LOI terms to hold unless diligence reveals something unexpected
• sellers expect the buyer to proceed on the agreed framework
• changes to price or structure are often viewed as re-trades

That doesn’t mean LOI terms can never change. It means changes require justification — typically new information uncovered in diligence that could not reasonably have been known earlier.

Absent that, resistance is strong.

Exclusivity

Legally, exclusivity is the most important point in most LOIs. Once exclusivity begins:

• alternative buyers disappear
• competitive pressure evaporates
• diligence costs accumulate
• walking away becomes more painful for both sides

At that point, leverage is no longer theoretical. It’s structural.

This is why many of the most important economic outcomes — including price, structure, and risk allocation — are effectively decided at the LOI stage, even though definitive documents come later.

 Re-Trades: When They’re Legitimate — and When Leverage Takes Over

Re-trades happen. Some are appropriate. Many are not.

Legitimate re-trades typically arise from:

• undisclosed liabilities
• inconsistent financials
• customer concentration surprises
• regulatory or compliance issues
• material deviations from diligence expectations

Problematic re-trades arise when:

• diligence confirms what was already known
• assumptions simply become inconvenient
• leverage shifts and pressure is applied

In practice, whether a re-trade succeeds has less to do with abstract fairness and more to do with leverage — specifically, which party wants the deal to close more at that moment.

That leverage is shaped not only by exclusivity, but by what happens during diligence.

Sellers who take steps that make closing the deal operationally or personally necessary — such as restructuring staff in anticipation of the sale, disclosing the transaction too broadly, or allowing deep integration between the buyer and key employees — often weaken their ability to resist later changes.

This is why LOI provisions governing diligence matter. Decisions about buyer access to personnel, customers, and sensitive operational information are not just confidentiality issues — they are leverage decisions. Once those doors are opened, the cost of a failed deal can increase dramatically for the seller.

The practical consequence is straightforward: sellers should avoid creating dependency on closing before terms are finalized in a signed contract. Preserving optionality during diligence preserves leverage if issues arise.

The Practical Takeaway

The LOI is not just a starting point. It is a leverage event.

Even though price and structure are technically non-binding, they are commercially binding in all but name. Sellers who treat the LOI casually often find themselves locked into terms they assumed were provisional.

If a term matters, it is far easier to address it before exclusivity begins than after