Most founders celebrate when the Letter of Intent (LOI) arrives.
Bill Sorenson believes that’s exactly when sellers should become the most cautious.
In the latest episode of This Is M&A, Steven Monterroso sits down with Bill Sorenson, CEO and Principal of Heritage Capital Group, to explain why the Letter of Intent is not a formality. It’s the point where leverage begins shifting from seller to buyer.
After nearly 30 years advising middle market companies through acquisitions, Bill has seen founders focus almost exclusively on purchase price while overlooking the terms that often determine the real economics of the deal.
If you’re preparing to sell your business, understanding what happens before you sign an LOI may have a bigger impact on your outcome than anything that happens afterward.
The LOI Is More Than a Letter
Many sellers assume the purchase agreement is where negotiations really happen.
Bill argues the opposite.
By the time attorneys begin drafting definitive agreements, many of the most important decisions have already been made.
The LOI establishes the framework for the transaction.
It defines exclusivity.
It outlines major economic terms.
It shapes the negotiations that follow.
Once the LOI is signed, changing those terms becomes significantly more difficult because the leverage dynamics have already shifted. TIMA_EP28_PES_Sorenson_Heritage…
The Moment Leverage Starts to Move
The biggest change after signing an LOI isn’t legal.
It’s strategic.
Most Letters of Intent include an exclusivity provision, preventing the seller from negotiating with other buyers for a defined period.
That single provision dramatically changes the balance of power.
Before exclusivity, buyers compete for the opportunity.
After exclusivity, competition largely disappears.
The buyer controls the pace of diligence, the negotiation timeline, and much of the pressure throughout the remainder of the process.
Bill’s advice is simple: create competition before signing the LOI, not after.
Why Buyers Want You to Sign Quickly
If you’ve ever felt pressure to “just sign the LOI so we can get started,” there’s a reason.
Speed benefits the buyer.
The sooner exclusivity begins, the sooner competing buyers are removed from the process.
Bill explains that experienced buyers understand exactly how leverage changes after an LOI is executed. That’s why they often encourage sellers to move quickly before every important issue has been fully negotiated.
Founders who recognize this dynamic are better positioned to slow the process down, ask tougher questions, and negotiate from a position of strength.
The Terms That Matter More Than Price
Purchase price grabs headlines.
But it rarely tells the entire story.
Bill encourages founders to negotiate all of the major economic terms before signing the LOI, including:
- Earnout structure
- Rollover equity
- Seller notes
- Escrow holdbacks
- Representation and warranty insurance
- Real estate treatment
Each of these provisions can significantly affect how much value the seller ultimately receives.
A higher purchase price with unfavorable terms may produce a worse outcome than a lower headline valuation with better economics.
Sophisticated sellers negotiate the entire package, not just the number at the top of the page.
Non-Binding Does Not Mean Consequence-Free
One of the biggest misconceptions surrounding Letters of Intent is that they’re “non-binding.”
Technically, much of the document is.
Practically, that can be misleading.
The exclusivity clause is often legally binding.
Once signed, sellers typically cannot continue pursuing alternative buyers during the exclusivity period.
Assuming you can simply walk away without consequences can create costly misunderstandings later in the transaction.
Understanding which provisions are binding and which are not is critical before signing.
What a Competitive Process Really Looks Like
One of the most memorable stories in the episode highlights why running a competitive sale process matters.
Bill shares an example in which qualified buyers valued the same business anywhere from 3x to 9x EBITDA.
Nothing about the company changed.
The market changed.
Different buyers saw different strategic value.
That range wasn’t unusual.
It was the result of properly testing the market instead of accepting the first serious offer.
For founders, it’s an important reminder that value is rarely fixed.
Competition creates pricing power.
Don’t Lose Focus After Signing
Many business owners relax after the LOI is complete.
Bill recommends the opposite.
The post-LOI period is when diligence intensifies.
Operations still need to perform.
Financial reporting must remain accurate.
Customers need to stay happy.
Employees need to remain engaged.
The strongest sellers continue running the business as though no transaction is taking place.
Maintaining business performance throughout diligence helps preserve confidence and reduces opportunities for buyers to renegotiate valuation.
Great Deals Are Won Before Closing
The central message of the episode is straightforward.
Winning an M&A transaction isn’t just about negotiating the highest purchase price.
It’s about preserving leverage for as long as possible.
That means preparing thoroughly before going to market, running a competitive process, understanding every major deal term, and resisting the urge to rush into exclusivity before the business is fully positioned for success.
The LOI isn’t the finish line.
In many ways, it’s where the real negotiation begins.
Listen to the Full Episode
Bill Sorenson has spent nearly three decades helping middle market business owners navigate acquisitions, valuations, and complex negotiations. His practical advice gives founders a clearer understanding of one of the most important documents they’ll ever sign and how to protect both leverage and value throughout the transaction.
Whether you’re considering an exit next year or simply learning how successful deals are structured, this episode offers valuable guidance every founder should hear.
Listen to the latest episode of This Is M&A to learn why the Letter of Intent is where leverage moves—and how to make sure it moves in your favor.
