The LOI is non-binding on price but binding on exclusivity. Reading it carefully prevents nasty surprises during diligence.
Price and structure
Confirm the enterprise value, debt assumption, rollover percentage, and any earnout. Vague language here usually means the sponsor wants negotiating room later.
Financing contingency
Strong sponsors should provide a debt commitment letter or, at minimum, a clear path to financing. An LOI with no financing detail is a yellow flag.
Exclusivity period
Sixty to ninety days is reasonable; anything longer than 120 should be negotiated. You give up market leverage during exclusivity.
Conditions to closing
Look for any closing condition the sponsor controls (such as raising sufficient equity). Push to specify how much equity must be committed at signing.
Expense reimbursement
If the deal dies for reasons outside your control, who pays your transaction expenses?
If you are evaluating a transaction in this space and want a candid second look, Solender Capital is happy to compare notes. Reach out through our contact page and share what you are working on.