A Letter of Intent (LOI) (sometimes “Memorandum of Understanding” or “Term Sheet” in M&A context) is a preliminary written document — typically 3–10 pages — outlining the principal commercial terms of a proposed M&A transaction and signaling the parties’ good-faith intent to negotiate definitive documents. The LOI serves as the bridge between initial deal discussion and definitive-document drafting, allocating negotiation leverage and creating limited contractual protections during the often-lengthy diligence and documentation period.
LOIs are generally non-binding on commercial terms (price, structure, indemnification framework) but typically contain several binding provisions that survive whether or not the deal closes: exclusivity (no-shop) for 30–90 days preventing the seller from soliciting alternative offers; confidentiality covering both the proposed transaction terms and information shared during diligence (often supplementing a stand-alone NDA); expense reimbursement for the buyer’s diligence and legal costs if seller terminates without cause; governing law and dispute resolution; and termination conditions (mutual, breach, drop-dead date).
Key commercial terms typically addressed in an LOI: structure (share deal, asset deal, merger); purchase price (cash, equity, deferred consideration, earn-outs); price-adjustment mechanism (working capital, locked box, debt-free/cash-free); key conditions (regulatory approval, third-party consents, financing, due diligence satisfaction); employee retention (founder employment terms, key-employee retention plans); representations and warranties framework (scope, caps, baskets); indemnification outline; and timing (diligence period, definitive-agreement target, closing target).
Sophisticated sellers approach LOI negotiation with the understanding that the LOI sets the tone and economic framework for definitive-document negotiation. Once exclusivity locks in, seller leverage drops materially — buyers can re-trade on price, terms, and structure with the seller’s only alternative being to terminate exclusivity and restart the marketing process. Sellers therefore push for: shorter exclusivity periods (30–45 days vs. 90+); specific milestones required during exclusivity (definitive-agreement draft delivery, financing-commitment securing); price-protection language (no re-trading absent material adverse facts surfaced in diligence); and fiduciary outs for unsolicited superior proposals.
For Turkish founders entering M&A processes, LOI negotiation requires careful management of multiple competing dynamics: maintaining auction tension and pricing leverage, managing buyer expectations on diligence access and timeline, structuring exclusivity terms that don’t over-commit, and coordinating Turkish-side regulatory considerations (Turkish Competition Authority pre-notification, sector-specific approval requirements). Vircon Legal advises sellers and buyers on LOI strategy — exclusivity scope, binding-provision negotiation, commercial-term framing, condition design, and the strategic transition from LOI to definitive-document negotiation.