LOI structure & strategy — the document that sets the price ceiling and grants exclusivity.

The LOI is where the deal goes from competitive auction to bilateral negotiation. Before the LOI, the seller has multiple buyers and price discovery. After the LOI, the seller has one buyer and exclusivity. Every advantage the seller will extract from the deal flows from how the LOI is structured before signing.

§ 01 · The binding / non-binding splitThe LOI's hybrid legal nature.

Binding provisions (enforceable regardless of whether the deal closes): No-Shop / Exclusivity (seller cannot solicit or entertain other offers during the exclusivity period); Confidentiality (mutual confidentiality obligations survive deal failure); Expense Allocation (who bears costs — legal, accounting, diligence — if the deal fails); Break-Up Fees (pre-agreed compensation if a party walks away, more common in larger deals); Governing Law and Dispute Resolution.

Non-binding provisions (express intent but are not legally enforceable): Purchase Price; Closing Date; Employment / Consulting Terms for the seller post-close; Representations and Warranties framework; Asset scope and excluded items.

The asymmetry is the point. Sellers grant binding exclusivity in exchange for non-binding price. Buyers receive enforceable lock-up in exchange for movable economic terms. Sellers who don't understand this asymmetry give up leverage without realizing they've done it.

§ 02 · The Big Four componentsWhat the LOI actually decides.

Price and Payment Structure. Total enterprise value, cash at close vs. deferred consideration (earnouts, seller notes, equity rollover). The Triple-Threat Analysis framework evaluates LOIs across three dimensions — Price (headline number), Payout (how and when the seller gets paid), Provisions (what conditions must be met).

Deal Structure. Asset purchase vs. stock purchase, what's included vs. excluded, assumed liabilities. Asset sales dominate (90%+ of agency deals); stock sales appear only when a specific contract or license cannot transfer via asset structure.

Due Diligence Conditions. Scope, timeline, and satisfactory completion requirements. The diligence period is the window during which the buyer can walk away or request price adjustments. The seller's defense is specificity — defining exactly what "satisfactory completion" means rather than leaving it as a buyer-discretion phrase.

Exclusivity Terms. Duration of no-shop period, automatic expiration vs. renewal mechanics, buyer obligations during exclusivity. Standard market range is 45–60 days; carrier-dependent or larger deals may extend to 90. The seller's target is the shortest defensible window — push for 30–45 days where deal complexity supports it. Whatever the duration, require automatic expiration with renewal contingent on mutual consent and demonstrated buyer diligence progress milestones.

§ 03 · Insurance-specific economicsCommission allocation and carrier contingencies.

Commission allocation rules. The LOI must address how commissions earned between signing and closing are allocated. Two common approaches. Effective-Date Rule — commissions on policies effective after a specified date belong to the buyer, regardless of when payment is received. Cleaner conceptually but can create cash-flow gaps. Receipt-Date Rule — commissions belong to whoever owns the agency when the payment is received. Simpler operationally but creates allocation disputes for policies written near the transition. Specify the rule in writing; verbal understandings produce six-figure fights at closing.

Carrier appointment contingencies. Change-of-control provisions in carrier contracts may require carrier approval before appointments transfer. The LOI should specify which carrier approvals are conditions to closing vs. post-close obligations. Failure to obtain key carrier approvals can kill the deal or require restructuring at the last minute.

Earnest money / deposits. Some LOIs include a good-faith deposit (typically 1–3% of purchase price). Deposit terms should specify refundable vs. non-refundable, conditions for forfeiture, and escrow requirements. Earnest money signals buyer seriousness but creates complexity if the deal fails — use it deliberately, not reflexively.

§ 04 · The Price Ceiling effectWhy the LOI price is the maximum, not the floor.

The LOI price is a ceiling, not a floor. Due-diligence findings almost always create downward pressure. Retrading — the practice of reducing the agreed price during or after diligence — is a persistent risk. Sellers should negotiate the highest defensible price at LOI stage knowing this dynamic.

The best defense against retrading is thorough pre-LOI seller-side diligence: identify and address issues before the buyer finds them. Known issues disclosed upfront are priced in. Discovered issues become retrading ammunition. A clean Quality of Earnings, a documented compliance review, and a defensible client-retention analysis are the three artifacts that most effectively neutralize retrading pressure.

§ 05 · Contingency architectureThe seven categories that need specificity.

Standard LOI contingencies in agency M&A: satisfactory completion of due diligence (the broadest and most important); carrier approval / change-of-control clearance; financing contingency (if buyer requires debt financing or SBA loan); lease assignment or new lease negotiation; key employee retention agreement execution; regulatory approvals (where applicable); no material adverse change (MAC clause).

Each contingency represents a potential deal-breaker. The seller's posture is specificity: what exactly constitutes "satisfactory" diligence completion? What carrier approvals are blocking vs. waivable? What MAC carve-outs apply (general economic downturns, force majeure, effects of the announcement itself)? Time-bound deadlines for each contingency prevent open-ended hold periods. Open-ended contingencies are how a 60-day exclusivity becomes a 120-day frozen process.

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