Letter of Intent Template for Business Acquisition: Free Sample With Every Clause Explained

A letter of intent (LOI) for a business acquisition is a short document, usually 3 to 8 pages, that sets out the price, structure and main terms of a proposed deal before the parties sign the definitive purchase agreement. Most of it is non-binding. A few clauses are binding, usually exclusivity, confidentiality, expenses and governing law, and those few clauses carry most of the legal risk. The free sample below explains each clause in turn, with example wording you can adapt.

This guide uses the letter of intent template for business acquisition that we start from on lower and middle-market deals. It covers what each clause does, what market data says the numbers usually look like, and two court cases that show what goes wrong when the binding and non-binding language is drafted badly.

What a Letter of Intent for Business Acquisition Actually Does

An LOI fixes the economics so both sides can justify spending on diligence and legal fees. The buyer gets a period of exclusivity. The seller gets a written price and structure to hold the buyer to, at least morally, when the purchase agreement drafting starts. Baker McKenzie's Global Private M&A Guide describes the usual pattern: preliminary documents that are mostly non-binding, plus an exclusivity period that typically runs 30 to 60 days after signing.

The LOI also sets the frame for every later negotiation. If the letter says "cash-free, debt-free with a normalized working capital peg," the seller can't easily argue later that excess cash belongs to them. If the letter says nothing about an escrow, the buyer will have a harder time asking for 10% of the price to be held back. Anything you leave out of the LOI, you will have to negotiate later with less leverage.

Takeaway: Treat the LOI as the term sheet for the purchase agreement. Every economic point you care about should be in it, even if only as one sentence.

Letter of Intent Template for Business Acquisition: Every Clause Explained

Below is the clause-by-clause structure of our free sample. Each heading gives the clause, sample wording, and what to watch.

1. Parties and Transaction Structure

Sample: "Buyer proposes to acquire 100% of the issued and outstanding equity interests of [Target] (the 'Company') from [Seller] (the 'Transaction')."

Say plainly what is being bought: stock, membership interests or assets. The choice drives tax treatment and which liabilities come across. Asset deals are common even in larger transactions. In the ABA's 2025 Private Target Deal Points Study, 21% of the 139 agreements reviewed were purchases of substantially all assets rather than equity purchases or mergers.

2. Purchase Price and Form of Consideration

Sample: "The aggregate purchase price will be $[X] (the 'Purchase Price'), payable as follows: $[A] in cash at closing, $[B] in Buyer rollover equity, and up to $[C] in contingent earnout payments, on a cash-free, debt-free basis assuming a normalized level of working capital."

Write the headline price as an enterprise value, then split it by form of payment. Sellers should model the cash at closing separately from deferred and contingent amounts, since an earnout is worth far less than its face value. Run the split through a spreadsheet model before you send the letter. A simple Excel template showing cash at close, escrow, earnout probability and the tax on each piece will change how you negotiate.

3. Working Capital Adjustment

Sample: "The Purchase Price will be adjusted dollar-for-dollar to the extent closing net working capital exceeds or falls short of a target equal to the Company's trailing twelve-month average."

This is now standard. SRS Acquiom's 2025 Deal Terms Study quick reference shows working capital adjustments in roughly 85% of the 2024 deals it tracked. Agree the method for setting the peg (trailing 12-month average, seasonally adjusted, or a fixed number) in the LOI. Leaving it for later is how sellers lose 2 to 5% of the price in the purchase agreement.

4. Earnout

Sample: "Seller will be eligible to receive up to $[C] based on the Company achieving revenue of $[Y] for fiscal year [20XX], measured under GAAP consistently applied."

Earnouts close valuation gaps, and they also tend to end in disputes. SRS Acquiom's data shows earnouts in about 22% of non-life-sciences deals in 2024. When they were used, the median earnout equaled 31% of the closing payment. Define the metric, the measurement period, the accounting policy and any acceleration events on change of control. Revenue targets lead to fewer disputes than EBITDA targets because the buyer has less room to load costs into them.

5. Escrow, Holdback and Indemnification

Sample: "At closing, [10]% of the Purchase Price will be deposited in escrow for [12] months to secure Seller's indemnification obligations. Buyer may obtain a representations and warranties insurance policy, the cost of which will be borne [equally]."

Put the escrow size and duration in the letter. Market data supports specific numbers. SRS Acquiom's 2024 study, as summarized by Fasken in March 2025, found a median general indemnity escrow of 10% of transaction value on deals without R&W insurance and 0.5% on deals with it, and the median survival period for general reps went back to 12 months. If the buyer plans to use R&W insurance, the seller should push for the lower escrow in the LOI itself.

6. Due Diligence and Timeline

Sample: "Buyer anticipates completing its business, financial, legal and tax due diligence within [45] days and signing a definitive agreement within [60] days of the date of this letter."

Attach a diligence request list as an exhibit. A dated timeline gives the seller a reason to end exclusivity if the buyer drifts.

7. Financing

Sample: "Buyer intends to fund the Transaction with cash on hand and committed debt financing from [Lender]. The Transaction will not be subject to a financing condition."

Sellers should ask for this sentence. A buyer who will not write it is telling you something about certainty of close.

8. Management, Employees and Conditions

Name the key employees who must sign employment or consulting agreements, any third-party consents (landlords, major customers), and regulatory approvals such as HSR filings. Each condition is a way for the deal to fall apart later, so keep the list short.

9. Exclusivity (Binding)

Sample: "For [45] days from the date of execution, Seller will not, and will cause its representatives not to, solicit, encourage, or negotiate any proposal for the acquisition of the Company with any party other than Buyer."

Baker McKenzie notes the clause typically also bars sharing non-public information with third parties and requires the seller to keep its agents out of other negotiations. Sellers should cap the term, add automatic termination if the buyer reduces the price, and keep any extension conditional on diligence progress.

10. Confidentiality, Expenses, Governing Law and Non-Binding Effect (Binding)

Sample: "Except for Sections 9 and 10, this letter is a non-binding expression of interest and does not create any legally binding obligation. No binding obligation will arise unless and until a definitive agreement is executed."

This is the most important sentence in the document. McDonald Hopkins warns that an LOI containing all the material terms, with no reference to a later definitive agreement, can be read as binding.

Takeaway: Before sending, go through all ten clauses and mark each one binding or non-binding in the margin. If you can't tell which it is from the text alone, a court won't be able to either.

Binding vs. Non-Binding: Two Cases That Show the Stakes

The most famous LOI dispute in US history started with a handshake deal. On January 4, 1984, Getty Oil and Pennzoil issued matching press releases announcing an agreement in principle. Days later Texaco offered $125 a share, and the Getty board accepted. Pennzoil sued Texaco for tortious interference. In November 1985 a Houston jury awarded Pennzoil $10.53 billion, then the largest jury verdict in US history, as the Christian Science Monitor reported at the time. Texaco filed for bankruptcy protection in April 1987. Many lawyers had argued that the Getty-Pennzoil memorandum was not binding under New York law. The jury disagreed, because the documents and press releases did not make the parties' intent clear.

The second case is more recent. In SIGA Technologies v. PharmAthene, decided by the Delaware Supreme Court on May 24, 2013, the term sheet carried a "Non Binding Terms" footer on every page. The parties later signed a merger agreement that required them, if the merger failed, to negotiate a license in good faith on terms consistent with the term sheet. SIGA then demanded terms far worse for PharmAthene. Jones Day's summary of the ruling explains that the court held expectation damages can be awarded for bad-faith negotiation if the trial court finds the parties would have reached agreement but for the bad faith. A "non-binding" footer did not protect SIGA once a binding good-faith obligation pointed back to the term sheet.

Takeaway: Do not add a general "negotiate in good faith" covenant to your LOI unless you mean it. Under Delaware law it can turn your non-binding economics into the measure of damages.

Market Benchmarks to Plug Into Your LOI Example

Use public deal data as your anchors when negotiating each number. The two most-cited datasets are SRS Acquiom's annual Deal Terms Study, which covers more than 2,200 private-target deals closed from 2019 to 2024, and the ABA Private Target M&A Deal Points Study, published December 16, 2025, which reviews 139 public-buyer acquisitions of private targets.

Exclusivity: 30 to 60 days is the common range (Baker McKenzie). Go longer only for regulated or carve-out deals.
General indemnity escrow: median 10% without R&W insurance, 0.5% with it (SRS Acquiom 2024 study).
Survival of general reps: median 12 months (SRS Acquiom 2024 study).
Working capital adjustment: present in about 85% of deals (SRS Acquiom 2025 quick reference).
Earnout: about 22% of non-life-sciences deals, median size 31% of closing payments (SRS Acquiom 2025 study).

If your draft is well outside these ranges, for example a 20% escrow for 24 months on an insured deal, expect pushback and have a diligence-based reason ready.

Takeaway: Add a benchmark column next to each economic term in your LOI tracker. That way any off-market ask has to be justified in writing.

Step by Step: From First Draft to Signed LOI

Build the valuation first. Finish the spreadsheet model (EBITDA bridge, multiple, net debt, working capital peg) before you write a price.
Fill in the template. Start from the ten-clause free sample above and fill in every bracket. Delete clauses you don't need instead of leaving placeholders.
Mark binding sections. List them by number in the non-binding effect clause. Leave everything else expressly non-binding.
Pressure-test the cash at close. Model the seller's after-tax proceeds under the escrow, earnout and adjustment terms. Sellers should do the same thing from the other side.
Get counsel to review the binding clauses. An hour of legal time on exclusivity and governing law costs far less than any of the outcomes described above.
Send with a deadline. Have the offer expire in 5 to 10 business days so the seller can't use it to shop for better bids.
Track open points. Once signed, turn the LOI into an issues list that feeds the first draft of the purchase agreement.

Takeaway: Steps 1 and 4 are where most first-time buyers skimp. Do the math before you send the letter.

Why a Ready-Made LOI Template Saves Weeks

The LOI is a short document, but it sets the price, decides who carries post-closing risk and controls how long the seller is off the market. Pennzoil and SIGA both show what unclear binding language can cost. The SRS Acquiom and ABA data show that most of the economic terms have well-established market ranges. A good template gives you both: clause wording that draws a clear line between binding and non-binding sections, and brackets you fill in from the benchmarks.

Start with a tested letter of intent template for business acquisition and pair it with an Excel template for the valuation and sources-and-uses. That way your first offer is defensible and your exclusivity period goes on diligence. You won't need to spend it redrafting.