What is a letter of intent (LOI) in M&A, and what does it mean for a data license?
A letter of intent in M&A is a written outline of the main deal terms, price, structure and timetable, that a buyer and seller agree before drafting the definitive agreement. Most terms are non-binding, but exclusivity and confidentiality usually bind. If a client may license its data, raise it before the LOI is signed.
What is a letter of intent in M&A?
A letter of intent (LOI) is a short document in which a buyer sets out the terms on which it proposes to acquire a company: headline price, form of consideration, structure, key conditions and the path to signing. It turns a verbal conversation into something both sides and their advisors can negotiate against.
For an M&A advisor, the LOI is the point where an indication of interest becomes a deal with a single buyer. It usually arrives after management presentations and before confirmatory diligence and the purchase agreement.
What is usually in an LOI?
| Term | What it covers | Why it matters to the seller |
|---|---|---|
| Price and form | Cash, stock, seller note, earnout | Sets the headline number and how much is at risk |
| Structure | Asset or stock purchase, rollover equity | Drives tax and which assets transfer |
| Working capital and debt | Peg, cash-free debt-free language | Often moves the real price at closing |
| Diligence scope | Financial, legal, commercial, IT reviews | Defines what the buyer will ask to see |
| Exclusivity | Period during which the seller cannot talk to other buyers | Removes the seller's leverage while it runs |
| Conditions | Financing, approvals, key employees | Shapes the odds of closing |
| Confidentiality | Treatment of information shared | Applies even if the deal fails |
| Timetable | Target signing and closing dates | Sets the pace of diligence |
Is an LOI binding?
Generally, the commercial terms are written as non-binding, while a few provisions are expressly binding: exclusivity (often called a no-shop), confidentiality, expense allocation and governing law. Whether a given clause binds depends on the wording and the governing law, so the document itself and the company's lawyer decide. This is general information, not legal, tax or financial advice. Confirm with your own counsel before acting.
LOI vs term sheet
The two terms overlap. In practice, "term sheet" is more common in venture and financing deals, and "LOI" in acquisitions, but neither label determines what binds. Read the clauses, not the title.
Why does an LOI matter to a data-licensing introduction?
A company that holds years of operational records across email, CRM, finance, support and engineering systems may be able to license that data to AI labs and data buyers through SourceX. A data license is typically exclusive for AI training for an agreed term, so it can interact with a sale: a buyer will want to know what rights attach to the records it is acquiring.
The practical point is sequence. Once an LOI with exclusivity is signed, the seller may be restricted from entering other significant agreements without the buyer's consent, and a licensing deal can fall into that category. Check the LOI's interim-conduct and no-shop wording before any licensing conversation moves past the screening stage.
| When the idea comes up | What usually works | Who to involve |
|---|---|---|
| Before the sale process launches | Screen the company; licensing can be settled and disclosed in the CIM | Owner, advisor |
| During marketing, before an LOI | Raise it so buyers can price the rights | Owner, advisor, deal counsel |
| After LOI, during exclusivity | Ask for the buyer's written consent first | Owner, counsel, buyer |
| After closing | The purchase agreement decides who holds the right to license the records | Buyer's management |
Nothing about licensing is binding until the company agrees price and terms with SourceX and signs, so a screening conversation does not by itself breach exclusivity. Still, ask counsel before the second step.
What to say to a client before an LOI
Related terms
- A confidential information memorandum (CIM) is the marketing document that precedes most LOIs.
- A tail period in an engagement letter can affect which transactions an advisor is paid on after the mandate ends.
- Exit readiness is the preparation that makes an LOI stage run smoothly.
- An independent sponsor is a common LOI counterparty in the lower middle market.
- A fractional CFO often assembles the numbers an LOI is built on.
How partner rewards work
Partners earn 25% of the eligible platform fees SourceX actually collects from the referred company's licensing deals, capped at $100,000 cumulative per referred company. The reward is paid only after the buyer pays and SourceX receives its fee; an introduction, meeting or signed agreement alone does not trigger payment, and no reward is guaranteed. Advisors should check their engagement letters and professional rules on referral fees first. See the program terms.
Next step
Run the company fit checker on a client with 50+ full-time employees at peak (contractors excluded), then read who qualifies. If the fit is there, register as a partner and see the referral opportunities for M&A advisors.
- Step 1Share your linkSend your personal link to a company you know.
- Step 2Company appliesThe company applies itself at /apply.
- Step 3Buyer selects and paysThe buyer selects and pays for the data and SourceX receives its fee.
- Step 4You get your rewardYour share of SourceX fees becomes payable.
Common questions
Is a letter of intent legally binding?
Usually only in part. Price, structure and closing terms are typically drafted as non-binding, while exclusivity, confidentiality and expense provisions are often expressly binding. The wording and governing law decide, so the seller's counsel should read each clause. Do not assume a document is non-binding because it is called a letter of intent.
How long does LOI exclusivity usually last?
It is negotiated and varies by deal, so no standard length applies. Sellers generally try to keep it short and tie extensions to diligence progress. Whatever period is agreed, treat it as a window in which side agreements, including a data license, may need the buyer's written consent.
Can a company license its data after signing an LOI?
Possibly, but only if the LOI's exclusivity and interim-conduct clauses allow it or the buyer consents in writing. A data license is typically exclusive for AI training, so a buyer may want a say. Ask the company's counsel to check the wording first.
Does a referral partner need to join the M&A deal process?
No. A partner only introduces a company and shares basic fit information. SourceX works directly with the company on inventory, rights review, price and terms. Partners never export, upload or describe confidential records, and they take no part in the sale negotiation.
What is the difference between an LOI and a definitive agreement?
The LOI sketches the deal and is mostly non-binding. The definitive agreement, usually a purchase agreement, contains full representations, warranties, indemnities and closing mechanics, and is binding once signed. Diligence between the two can change price or terms, which is why sellers avoid committing to side deals in that window.
Related pages
- What is a confidential information memorandum (CIM) in M&A?
- What is a tail period in an engagement letter, and how does it work?
- What is exit readiness, and how do you assess it?
- What is an independent sponsor, and how do fundless deals work?
- What is a fractional CFO, and what should one check before introducing a client?
- Check Company Fit for Data Licensing
Free resources
- Client opportunity brief generator — An editable intro email, summary and checklist.
- Days sales outstanding calculator — How many days customers take to pay.
- Business succession planning assessment — Ten questions on successor, transition and documentation.
- All free tools · MCP resource center
By SourceX Partnerships Team · Published 2026-10-09 · Updated 2026-10-09
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