The Letter of Intent — the LOI — is the most consequential negotiated document in your home care sale before the purchase agreement itself. Most sellers underestimate how much of the deal is decided at LOI rather than at definitive agreement. By the time you sign the LOI, the framework for nearly every subsequent negotiation is set.
This guide covers what to negotiate in an LOI and what to refuse.
What an LOI Includes
A standard home care M&A LOI addresses:
Economic Terms (Typically Non-Binding)
- Purchase price and payment structure (cash, rollover, seller note, earnout)
- Indebtedness and cash assumptions
- Working capital target and methodology
- Asset vs. stock structure
- Closing conditions
Process Terms (Often Binding in Part)
- Exclusivity period (binding)
- Confidentiality (binding)
- Diligence access and scope
- Timeline to definitive agreement
- Conditions to close
Governance Terms (Typically Binding)
- Expense allocation if deal fails
- Governing law
- Termination rights
- Confidentiality continuation
Binding vs. Non-Binding Provisions
The LOI clearly distinguishes which terms bind the parties before definitive agreement:
Always Binding
- Confidentiality
- Exclusivity (if granted)
- Expense allocation
- Governing law
- Press release / publicity restrictions
Sometimes Binding
- Specific seller obligations (operating in ordinary course)
- Specific buyer obligations (good faith negotiation)
- Pre-close access provisions
Always Non-Binding
- Purchase price (subject to diligence)
- Specific deal structure
- Definitive representations and warranties
- Indemnification specifics
Critical Negotiation Items
1. Exclusivity
Sellers should negotiate:
- Shortest reasonable period (45–60 days preferred; 90+ days disadvantageous)
- Clear conditions for buyer to maintain exclusivity (good-faith diligence progress)
- Right to terminate if buyer materially modifies terms
- Right to terminate if buyer fails to provide good-faith proposal
2. Purchase Price Definition
- Cash-free, debt-free purchase price
- Working capital adjustment methodology
- Treatment of specific items (cash, debt, options, transaction expenses)
- Pre-LOI working capital benchmark
3. Re-Trade Protection
- Specific conditions to closing identified
- Diligence scope defined
- Material adverse change (MAC) provisions narrowly defined
- Information access scope clear
4. Structure
- Asset vs. stock
- Tax structure (338(h)(10), F-reorg)
- Treatment of real estate
5. R&W Insurance
- Confirm R&W will be primary indemnity vehicle
- Cost allocation
- Policy size
6. Escrow / Holdback
- Maximum escrow size
- Working capital escrow
- No buyer holdback (escrow only)
7. Indemnification Framework
- Cap structure (with R&W: limited to retention)
- Survival periods
- Basket structure (true deductible)
- Materiality scrape (resist double scrape)
8. Closing Conditions
- Specific, defined conditions
- No vague “satisfactory diligence” provisions
- Timeline to close
9. Expense Allocation
- If buyer terminates without cause: buyer reimburses seller
- If seller terminates: typically each party bears own expenses
- Transaction expenses below the line (clearly defined)
10. Management Continuation
- Defined roles for selling executives
- Compensation framework
- Equity participation (rollover)
What Sellers Often Concede They Shouldn’t
- Long exclusivity (90+ days)
- Vague closing conditions (“subject to satisfactory completion of diligence”)
- Broad re-trade rights without specific triggers
- Aggressive escrow without R&W consideration
- No-shop without seller protections
- Buyer holdback in lieu of third-party escrow
- Vague working capital methodology
- Loose indemnification framework
What Sellers Should Insist On
- Defined diligence scope and timeline
- Specific closing conditions
- Reasonable exclusivity with seller protections
- R&W insurance contemplated
- Cap-aligned escrow
- True deductible basket structure
- Working capital methodology defined
- Expense allocation favorable on buyer-caused termination
- MAC narrowly defined
LOI Process Timing
| Stage | Duration |
|---|
| IOI received | Single date |
| Buyer selection / counter | 1–2 weeks |
| LOI negotiation | 2–4 weeks |
| LOI signed | Single date |
| Diligence period | 6–10 weeks |
| Purchase agreement negotiation | 4–8 weeks (parallel) |
| Close | 60–90 days post-LOI typical |
Diligence and purchase agreement negotiation run in parallel during the exclusivity period.
Common Seller Mistakes
1. Signing LOI too quickly.
LOI terms set the negotiating baseline for everything that follows.
2. Underestimating exclusivity cost.
Exclusivity eliminates competitive tension during the most leverage-sensitive period.
3. Vague closing conditions.
Broad conditions invite re-trade.
4. No R&W consideration.
R&W structure must be established at LOI.
5. Working capital framework deferred.
Methodology must be agreed at LOI.
6. Single-buyer LOI.
LOI value is highest in competitive process; defaulting to first buyer eliminates leverage.
7. Inadequate sell-side QoE.
Pre-LOI QoE limits buy-side QoE re-trade ammunition.
How Hendon Partners Helps
Hendon Partners negotiates LOIs that maximize seller protection across exclusivity, re-trade resistance, structural framework, escrow, indemnification, and closing conditions. The LOI is where the most consequential negotiation in the entire deal happens — and where strong advisory creates the most measurable value.
Schedule a confidential conversation with Hendon Partners →
Hendon Partners is a sell-side only home care M&A advisory firm.
