Letter of intent.

The LOI is where the deal architecture stops being theoretical. Up to this point, the seller has been comparing offers and running a competitive process. After the LOI, the seller has chosen a counterparty and accepted that competitive leverage is largely gone. The document itself is hybrid — some provisions binding, others not — and the seller's job is to know exactly which parts of the document have legal force and which are aspirations the buyer can walk back during diligence.

Binding vs. non-binding.

The LOI's most-important structural feature is that it is two documents in one. The binding provisions are enforceable contracts; the non-binding provisions are commercial intent that will be reduced to enforceable form in the definitive purchase agreement. Confusing the two is one of the most expensive seller mistakes in agency M&A.

The number moves down, not up.

The structural reality of LOI pricing: the headline price in the LOI is the ceiling. Diligence findings after LOI execution almost always create downward pressure on the final number. Buyers don't find pleasant surprises in diligence; they find issues — undisclosed liabilities, weaker-than-modeled retention, integration complications, carrier change-of-control surprises — and each issue becomes a retrading lever.

Sellers who negotiate "soft" LOI prices believing they can defend them in diligence consistently end up at lower wire amounts. The discipline that holds up: negotiate the highest defensible price you can support with documented diligence package, then defend it aggressively against retrading attempts.

Defending against post-LOI retrading:

• Pre-LOI documentation. The cleaner the seller's diligence package at LOI, the less retrading surface area the buyer has. The Master Add-Back Schedule, the legal-compliance VDR, the data-hygiene work — all of this is what limits retrading.
• Specific retrading thresholds. Some LOIs include language that retrading requires a defined material adverse change. Strong sellers push for this; buyers resist.
• Backup buyer maintenance. Even under exclusivity, sellers can maintain dignified communication with the next-best buyer in case retrading becomes severe enough to walk.
• Defined retrading consequences. Some LOIs require buyers to fund certain seller costs if they retrade beyond a defined threshold. Asymmetric — but worth attempting in strong-seller deals.

Time-box the no-shop.

The no-shop / exclusivity covenant is the seller's most-meaningful concession at the LOI stage. From signing, the seller commits not to engage with other buyers, not to respond to inbound inquiries, not to continue any conversations that were ongoing. The competitive process is over; the negotiation is bilateral. Buyer's negotiating leverage rises sharply at the moment the no-shop attaches.

The discipline: minimize the duration. The structure that works:

• 45–60 days standard, up to 90 in larger deals. The buyer needs enough time to complete diligence and draft definitive agreements; not enough to grind the seller into accepting retrading.
• Automatic expiration. The no-shop expires on the named date unless both parties mutually agree to extend. Defaulting to expiration prevents passive-default limbo.
• Defined deliverable milestones. Specific buyer milestones during exclusivity — diligence completion by week X, definitive draft circulated by week Y, target close by week Z. Missed milestones become extension-negotiation triggers.
• Carve-out for unsolicited approaches. Some no-shops require the seller to inform the locked-in buyer of any unsolicited approaches; some restrict the seller from any response. The narrower scope is seller-friendly.

What agency LOIs uniquely cover.

Insurance agency LOIs need to address industry-specific provisions that don't appear in generic M&A LOI templates. The provisions that matter:

• Commission allocation. The cut-over rules for commission revenue earned around the closing date. Effective-date rules (commissions belong to whoever the policy is effective for at the moment) and receipt-date rules (commissions belong to whoever receives the check) produce different splits — the LOI should specify which applies and how the cutover works.
• Carrier appointment transfer. Some carrier contracts require advance written notice or approval for change-of-control. The LOI should identify the carriers needing approval and include a contingency for the approval process.
• E&O tail coverage. Whether the seller or buyer is responsible for E&O tail coverage, what the duration is, and who pays the premium.
• Producer agreement assumption. Whether existing producer compensation, non-piracy, and non-solicitation agreements survive the transaction, and which entity employs the producers post-close.
• Lease assignment. Office lease assignment terms, landlord consent requirements, any lease changes triggered by the change of control.
• Contingency definitions. Diligence completion, carrier approvals, financing approval, lease assignment, regulatory approvals — each defined precisely. Vague "satisfactory diligence" language is a buyer-friendly retrading mechanism.

The Pillar — Deal-Lifecycle Transaction Documents — covers the broader NDA → IOI → LOI document architecture. The other Explainers in this cluster: NDAs and IOIs.