The Letter of Intent (LOI) is arguably the most critical document in a home care agency transaction — more important at a practical level than the purchase agreement itself.
Counterintuitively, the LOI is largely non-binding. It describes the buyer’s intent, not a legal obligation. But make no mistake: the terms you agree to in the LOI set the expectations, the negotiating baseline, and the psychological anchors that govern every conversation that follows. Sellers who give up ground at the LOI stage almost never recover it.
This guide walks through every major LOI term, what buyers typically request, what is negotiable, and where you should hold firm.
An LOI is a written document — typically 5–15 pages — that outlines the proposed terms of a transaction. It is submitted by the buyer after completing initial diligence (management presentations, CIM review) and before full due diligence begins.
What the LOI is: A statement of intent with non-binding economic terms and several binding provisions (exclusivity, confidentiality, no-shop).
What the LOI is not: A binding commitment to purchase. The buyer retains the right to renegotiate or walk away based on due diligence findings.
The LOI formally begins the relationship between buyer and seller on specific terms. Once signed, you enter an exclusivity period — often 45–90 days — during which you cannot solicit or accept competing offers.
This is why the LOI requires expert review before signature. Once you are exclusive, your leverage for major term changes drops significantly.
The most visible term. But headline price is only part of the story.
Enterprise value is the total value of the business. Equity value is what you actually receive — enterprise value minus assumed debt and plus (or minus) working capital settlement.
Two LOIs with the same headline price can produce dramatically different proceeds depending on:
What to watch: Buyers sometimes quote enterprise value in their headline while intending to apply a working capital peg that reduces your actual cash proceeds. Always model the full waterfall from enterprise value to net proceeds before comparing offers.
Asset purchase: Buyer acquires specific assets (contracts, licenses, equipment) and assumes specific liabilities. The legal entity remains yours. Generally favored by buyers — they get a clean slate, step-up in tax basis, and limited liability exposure.
Stock purchase: Buyer acquires the entire legal entity — including all historical liabilities. Generally favored by sellers — simpler for license transfers, potentially more favorable tax treatment, and no complex asset allocation discussions.
What to negotiate: Sellers should push for stock sale treatment, particularly for Medicare/Medicaid certified agencies where license transfer is complex. Buyers typically push back because stock purchases expose them to pre-close liabilities. The compromise often involves a stock purchase with specific indemnification carve-outs for pre-close regulatory matters.
Important tax note: For C-corporations, a stock sale vs. asset sale difference can be significant. For S-corporations, LLCs, and partnerships, the difference is often less material. Discuss with your tax advisor before signing.
Almost all LOIs include a no-shop clause — you agree not to solicit or enter discussions with other buyers for a specified period (typically 45–90 days). This is binding regardless of the non-binding nature of everything else.
What to negotiate:
Why this matters: Exclusivity turns off the market for your business. If the exclusive buyer eventually walks away or dramatically reduces price in late diligence, you have lost weeks or months of market presence. Protecting your right to terminate exclusivity for cause is critical.
Working capital in M&A is often described as the amount of “fuel in the tank” — the net current assets required to operate the business normally. The working capital target (the “peg”) is the amount that must be in the business at close.
If working capital at close exceeds the peg, you receive a dollar-for-dollar upward adjustment to your purchase price. If it falls short, you owe the buyer a dollar-for-dollar reduction.
This sounds simple. It is not.
Issues to negotiate:
Real-world impact: We have seen working capital disputes reduce seller proceeds by $300K–$1.5M on transactions that appeared to be at full price. A rigorous working capital negotiation at the LOI stage — or at minimum a clear definition of terms — is essential.
The LOI specifies how long the buyer has to conduct due diligence — usually 45–75 days from LOI execution (for home care, excluding states with long CHOW timelines).
What to watch:
Conditions that must be satisfied before closing include standard items (regulatory approvals, no material adverse change) and potentially deal-specific conditions.
Watch for: Overly broad “material adverse change” (MAC) conditions. A well-drafted MAC clause is narrow — limited to events that would materially impair the business specifically, not general market or industry conditions. Buyers with broadly defined MAC provisions can theoretically use them to walk away or reprice based on events unrelated to your specific business.
Even in a non-binding LOI, the expected indemnification framework is often sketched out. The key parameters:
Indemnification cap: The maximum amount you can be required to pay for post-close claims. Typically 10–20% of purchase price for general representations, 100% for fraud.
Deductible/basket: You only pay indemnification claims that exceed a minimum threshold (basket). Typically 0.5–1.5% of enterprise value.
Survival period: How long after close can the buyer file claims? Typically 18–24 months for general representations; longer for tax, environmental, and fundamental representations.
R&W insurance availability: If the deal uses Representations and Warranties insurance, the indemnification structure changes significantly — and typically in the seller’s favor.
What to negotiate: Push for lower caps, smaller survival periods, and explicit escrow limitations. If R&W insurance is available (most transactions $5M+ enterprise value), insist on it — it dramatically reduces your post-close exposure.
If the LOI includes a rollover equity component, the basic terms should be sketched here:
What to negotiate: Ensure common stock treatment, tag-along rights, and reasonable governance protections. If the LOI says “approximately 20% rollover on terms to be negotiated,” push the buyer to specify equity class and basic rights. These become very hard to negotiate after exclusivity starts.
If the buyer can terminate or reprice based on “any adverse development in the healthcare industry” or “changes in reimbursement rates generally,” this is not a serious LOI — it is an option to buy at the buyer’s discretion.
No indemnification cap, combined with a long survival period and broad representations, can expose you to claims that exceed your sale proceeds. Require a cap.
An LOI that says “working capital will be settled at close per the purchase agreement” without defining key terms is a trap. You are agreeing to a mechanism you haven’t reviewed.
Locking up the business for three months with a buyer who has no defined obligation to proceed in good faith is a gift to the buyer and a risk to you.
Phrases like “subject to financing,” “subject to board approval,” or “subject to partner review” in an LOI from a late-stage buyer signal that the offer is not real. Only accept LOIs from decision-makers with authority.
The LOI is not a document to review on your own over a weekend. The terms set here — exclusivity, price, structure, working capital mechanics, indemnification framework — are the foundation of a $5M–$20M+ transaction.
An experienced M&A advisor who has signed hundreds of home care LOIs will recognize every non-standard clause, know what the market terms are, and know which battles are worth fighting. Combined with an M&A attorney who specializes in healthcare transactions, you have the expertise to negotiate from strength.
Contact Hendon Partners about your pending or upcoming LOI →
Hendon Partners represents home care owners exclusively. Our advisors have guided sellers through the LOI process on dozens of transactions across all home-based care verticals.
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