What Healthcare Owners Should Know Before Accepting an LOI
- 1 day ago
- 5 min read
By Cory Mertz, M&AMI, Managing Partner, Mertz Taggart
At a Glance
A letter of intent, or LOI, sets the framework for selling your business: the price, the deal structure, and an exclusive period to complete the deal. Most of it is not binding, but the exclusivity usually is. Signing it is the moment your negotiating leverage flips, so the terms are worth getting right before you sign, not after.
When you sell a healthcare business, one moment shapes much of what follows more than owners tend to expect: the day you sign a letter of intent. By then, you have a serious buyer, a number on the table, and real momentum, and signing can feel like the deal is essentially done.
It usually is not, and a few of its terms carry more weight than they first appear.
Here is what to understand before you sign one.
What a letter of intent actually commits you to
A letter of intent, often called an LOI, is the document a buyer and seller sign to lay out the main terms of a deal and a plan to reach closing.
It typically covers the price, the broad structure of the deal, the timeline, and the major conditions that have to be met. Most of those terms are not legally binding, just a statement of intent, a framework both sides agree to work from while diligence is conducted and the details are finalized.
A few parts of the LOI usually are binding, and one matters more than the rest: exclusivity.
When you sign, you generally agree to stop talking to other buyers for a set period, often 60 to 90 days, while this buyer completes their work. Confidentiality is typically binding as well. So the document that can feel non-committal, because the price is not locked, actually does commit you to one thing that is hard to undo, which is taking your business off the market for everyone else.
Your leverage is highest the moment before you sign
The reason exclusivity matters so much is what it does to your negotiating position.
Up to the point you sign, a well-run sale keeps more than one qualified buyer interested, and that competition is what gives you leverage. Buyers who know others are at the table tend to put forward their strongest terms and move with urgency.
The moment you grant exclusivity, that dynamic changes. You have committed to one buyer, the others have stepped back, and the pressure that produced a strong offer is gone.
This is why the terms in the LOI deserve real attention before you sign rather than after. Anything you would want to negotiate, whether on price, structure, or conditions, is easier to address while you still have alternatives. It also helps to keep the exclusive period as short as is reasonable, with clear milestones and a firm end date, so a buyer cannot let diligence drift while your business sits off the market.
The price in the LOI is not the price you close on
The number written into the LOI is a starting point, and the period that follows it is where that number gets tested.
After both sides sign, the buyer begins detailed due diligence, a close review of your financials, contracts, compliance, and operations. That review can confirm the offer, or give the buyer reasons to lower it, a practice known in the industry as re-trading, and it is most likely when diligence turns up something the buyer did not expect.
The best protection against a re-trade is built before you ever sign. Clean, well-organized financials, documented compliance, and earnings a buyer can verify give a buyer far less room to revise the number downward. It also helps to understand the buyer’s reputation. Some buyers are known for honoring their LOI, and others are known for using diligence to chip away at the number. That history is worth knowing before you take your business off the market for them.
Read the deal structure before you sign, not after
An LOI does more than name a price. It also sets the structure of the transaction and that structure is hard to renegotiate once you are committed.
The LOI sets how the purchase price is paid: how much is guaranteed cash at closing, and how much is tied to what happens later, through pieces like rollover equity, a seller note, holdback, or an earnout. Weighing those pieces against each other is a subject of its own. The point at the LOI stage is simpler, because these terms are far easier to influence before you sign than to define or, worse case, renegotiate afterward.
Look closely at how much of the price is guaranteed versus conditional, and treat the conditional portions as possibilities rather than certainties. Earnouts in particular deserve scrutiny, and we generally push back on them and try to keep them out of a deal, or we simply treat them as “icing on the cake”.
The buyer behind the LOI decides whether it closes
A signed LOI is only as good as the buyer’s ability and intent to finish the deal.
The risk here is specific to the LOI. Once you grant exclusivity, a buyer who cannot finish the deal has tied up your no-shop period and your momentum. If the deal then falls apart, you are back at the start, after months spent on a buyer who could not close. So, before you sign, it helps to understand whether the buyer can actually fund and complete the transaction. A buyer with capital in hand tends to move quickly and predictably, while one who still has to raise the money, or who has a habit of renegotiating, brings more risk. A high number is not worth much from a buyer who cannot get to closing.
The stretch between the LOI and the closing table is where deals are most often won or lost. It is detailed and demanding, and it is where unexpected problems tend to surface. Many advisors step back once the LOI is signed. Staying closely involved through diligence and closing, keeping the process moving and heading off problems before they become leverage for the buyer, is where advisors earn their keep.
Key Takeaways
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Deciding whether to sign an LOI, and on what terms, is one of the most consequential moments in selling a business, and it is far easier with someone who has been through it many times.
Mertz Taggart is a healthcare M&A advisory firm that represents owners through the sale of their businesses, from the first conversation through diligence and closing. We help owners understand what an LOI really commits them to, hold the line on terms, and keep deals moving to a close.
If you have an LOI in front of you, or expect one before long, it is worth a confidential conversation before you sign.
Let’s talk.
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