A Short LOI Can Be a Virtue. A Vague One Is Not.

An LOI does more than describe a transaction. It reveals whether the buyer and seller are actually working on the same deal.

There are two schools of thought on LOIs.

One favors speed: price, payment terms, timeline, exclusivity. Lock up the deal and negotiate the details later.

The other wants more detail before exclusivity.

I’ve done both. We all learn.

On one acquisition, we agreed to value the company as a multiple of EBITDA. I sat down with the CFO and asked:

“How do you define EBITDA?”

“Earnings before interest, taxes, depreciation and amortization. It’s in the acronym.”

“Nothing else? No adjustments?”

“That’s it.”

I asked him to confirm it in writing. He did.

Later, the seller proposed a $750,000 EBITDA adjustment for excess owner compensation. That wasn’t the definition we had agreed to, and I had the CFO’s email.

They fired him.

I still needed to get the deal done, so we negotiated and met in the middle. But the outcome would have been considerably worse if we had never had the conversation.

That experience changed how I think about LOIs.

An LOI doesn’t need to become a miniature purchase agreement. But it should document the terms that determine actual seller proceeds and anything either party considers a deal breaker.

A short LOI can be a virtue. A vague one is not.

Which LOI term have you learned never to leave undefined?