What a Letter of Intent Actually Is
A Letter of Intent (LOI) is a non-binding document that outlines the key commercial terms of a proposed acquisition before the parties draft a definitive Asset Purchase Agreement (APA) or Share Purchase Agreement. In 2026, most transactions on hades.ae, Empire Flippers, and Acquire.com begin with an LOI that signals serious buyer intent while leaving room for final due diligence.
Core Elements Every LOI Must Contain
- Purchase Price and Structure: State the exact amount and whether the deal is an asset or stock sale, plus any earn-out or seller-financing components.
- Valuation Basis: Reference the agreed multiple (typically 2–4.5× ARR for SaaS or 2.5–3.5× SDE for content sites) and how it was derived.
- Working Capital and Cash-Free Debt-Free Terms: Define the target working-capital peg and confirm the business will be delivered free of long-term liabilities.
- Exclusivity Period: Grant the buyer 30–60 days of exclusivity so both sides can complete diligence without competing offers.
- Conditions to Closing: List remaining items such as key-employee retention, customer-contract assignment, and escrow arrangements (commonly 10–15 % of purchase price held for 12–18 months).
- Timeline and Termination: Set a target closing date (usually 45–75 days from LOI signing) and outline walk-away rights if material issues surface.
Binding vs. Non-Binding Provisions
While the purchase price and structure remain non-binding, certain clauses—confidentiality, exclusivity, and no-shop—are almost always made legally binding. This hybrid approach protects both parties during the expensive diligence phase without locking them into the final deal prematurely.
Common Negotiation Points in 2026
- Escrow holdback size and release schedule, especially for businesses with >8 % monthly churn.
- Revenue-recognition adjustments when ARR includes annual contracts paid upfront.
- Key-person insurance requirements for founder-dependent SaaS products.
- Post-close transition services, typically 30–90 days at no additional cost.
How long does an LOI usually stay valid?
Most LOIs include a 45–60-day exclusivity window; after that the seller may entertain new offers if the deal has not progressed to a signed APA.
Is the purchase price in the LOI final?
No. The price can be adjusted downward if due diligence reveals material discrepancies in MRR, customer concentration, or EBITDA quality.
Who typically drafts the LOI?
Buyers or their advisors (often through platforms like FE International or hades.ae) submit the first draft; sellers and their counsel then negotiate the final wording.
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