LOI Term Sheet Comparator
Compare up to 4 competing LOIs and rank by certainty-adjusted net proceeds.
A letter of intent (LOI) outlines the buyer's offer before creating the definitive purchase agreement. LOI terms vary significantly between buyers and often contain red flags that affect deal timing, risk, and total proceeds. Comparing multiple LOIs side-by-side helps you identify which offer has the most favorable terms and lowest execution risk.
Some LOI terms are purely financial (offer price, earnouts, working capital targets), while others are structural (reps & warranties, indemnification caps, closing conditions). A low offer from a well-capitalized buyer with minimal conditions may be more valuable than a higher offer with risky contingencies. This tool helps you compare across all dimensions.
LOI Offers
Financial vs. Structural LOI Terms
Financial terms are headline price, earnout structure, working capital targets, and any seller financing. These are easy to model. Structural terms include reps and warranties (what you promise is true about the business), indemnification (how disputes are resolved), conditions to closing (what must happen for buyer to close), and exclusivity periods. Structural terms can dramatically affect deal risk even if financial terms look good.
A $50M purchase price with a $10M earnout is not the same as $40M cash depending on whether the earnout is easy or difficult to achieve. Similarly, unlimited reps and warranties exposure is riskier than capped indemnification. Compare all dimensions when evaluating competing offers, not just headline price.
Key LOI Red Flags
Major red flags: loose financing conditions (buyer hasn't secured funding yet), short closing timeframes (unrealistic for complexity), open price (price not finalized), unlimited reps and warranties, broad indemnification without caps, no reverse break-up fee (buyer can walk for any reason and pays nothing), and vague earnout conditions. Each red flag increases deal risk significantly.
Be suspicious of LOIs that appear too good to be true. An extremely high offer from a buyer who hasn't done diligence, can't secure financing, and imposes difficult conditions is worse than a conservative offer from a well-capitalized buyer ready to close. Use this tool to model the true risk-adjusted value of competing offers.
Earnout Structures and Risk
Earnouts defer part of the purchase price to future payments based on business performance. They range from straightforward (buyer pays $X per year for 3 years based on EBITDA targets) to complex (earn-backs if certain customers leave, adjustments for revenue mix, etc.). Earnouts sound good because they increase headline value, but they expose you to buyer operational decisions, accounting disputes, and collection risk.
Hard-to-achieve earnout targets (requiring 30% revenue growth in a slow industry) are worth far less than conservative targets. Similarly, earnouts paid by a private buyer are risky; earnouts from a large strategic buyer are safer because they have resources to pay. Model worst-case scenarios where earnout targets are just barely missed.