---
title: "Letter of Intent"
url: "https://mahouse.world/glossary/letter-of-intent"
type: "glossary term"
topic: "Deal process"
author: "Ihor Vlasov"
reviewed: "2026-09-20"
published: "2026-08-10"
---

# Letter of Intent

A letter of intent is a short document in which a buyer sets out the price, structure and main conditions on which it proposes to acquire a company, signed before due diligence begins. It is not binding on the deal itself; only its confidentiality, exclusivity and cost clauses usually bind the parties.

**Also known as:** LOI, Heads of terms, Memorandum of understanding

## Key facts

- **Used at:** after first talks and an indicative offer, before due diligence opens
- **Binding:** no on price and terms; yes on exclusivity, confidentiality and costs
- **Typical length:** 3–8 pages, sometimes as a term sheet in table form
- **Typical exclusivity:** 30–90 days, extendable once
- **Parties:** buyer and seller (and the target's board where they differ)

## How a letter of intent works in practice

In a fintech acquisition the letter of intent is the moment the process narrows from several interested parties to one. The buyer states an enterprise value or a price range, how much is cash and how much is shares or an earn-out, whether the deal is a share purchase or an asset purchase, and what has to be true for it to close — regulatory approval from the FCA, the Bank of Lithuania or another licensing authority is the usual condition for a payment or e-money business, and a licence that cannot transfer with the company is often the reason an asset deal is chosen instead.

The seller signs because exclusivity is the price of a serious buyer spending money on lawyers, accountants and a technical review. The buyer signs because exclusivity stops the seller shopping the offer around for the 60 days the diligence takes. Everything else in the letter is a statement of intent: if diligence finds a safeguarding shortfall, a licence condition or a customer concentration the buyer did not know about, the price moves, and the letter is the document both sides go back to when they argue about how far it should move.

A well-drafted letter names the assumptions behind the price — revenue run-rate, net cash at completion, the absence of regulatory findings — so that a change in any of them is a change in a stated assumption, not a change of heart.

Timing matters as much as content. A letter sent before the seller has a data room ready commits both sides to an exclusivity clock that starts before anything can be read; a letter sent after three rounds of indicative offers is a formality. The usual sequence in a fintech process is teaser, non-disclosure agreement, information memorandum, indicative offer, management meeting, then the letter of intent — and the buyer who asks for exclusivity at the indicative-offer stage is asking for something it has not yet earned.

## Example

A payments company with £4m of annual revenue receives a letter of intent at an enterprise value of £22m: £16m in cash at completion, £3m held in escrow for 18 months against warranty claims, and £3m as an earn-out payable if revenue passes £5.5m in the first full year after closing. Exclusivity runs for 60 days. Diligence finds that £600k of the revenue comes from one merchant on a contract that expires in four months; the buyer revises the cash element to £14m and the earn-out to £5m, and the seller, still inside exclusivity, accepts.

## Common mistakes

- Treating the letter as binding on price, and being surprised when diligence moves it.
- Signing an exclusivity clause with no end date, or one the buyer can extend alone.
- Leaving the price assumptions unstated, so every later adjustment becomes a negotiation from scratch.
- Confusing a letter of intent with a term sheet: the substance is the same, but a term sheet is the table and the letter is the prose around it.
- Forgetting the regulator: a licence that needs a change-of-control approval turns a 60-day exclusivity into a 120-day one.

## Related terms

- [Term Sheet](https://mahouse.world/glossary/term-sheet.md)
- [Non-Disclosure Agreement](https://mahouse.world/glossary/non-disclosure-agreement.md)
- [Due Diligence](https://mahouse.world/glossary/due-diligence.md)
- [Share Purchase](https://mahouse.world/glossary/share-purchase.md)
- [Escrow](https://mahouse.world/glossary/escrow.md)
- [Break Fee](https://mahouse.world/glossary/break-fee.md)

— Ihor Vlasov, M&A FinTech Expert. Last reviewed 2026-09-20. https://mahouse.world/authors/ihor-vlasov