A letter of intent is meant to be a roadmap, not a finished contract, but the choices made at that stage tend to harden quickly once diligence begins. Buyers and sellers who treat the LOI as a formality often find themselves negotiating from a weaker position later, simply because a term was left vague or assumed rather than addressed head on. Below are five areas that consistently cause friction in middle-market transactions, and that are worth resolving, or at least framing clearly, before the LOI is signed.

1. Earnout Mechanics, Not Just the Earnout Amount

An earnout can bridge a valuation gap, but the number itself is rarely where deals break down. The real risk sits in the mechanics: how the metric is defined, who controls the business during the earnout period, what operating covenants apply, and how disputes over the calculation get resolved. Sellers should push for clear accounting definitions and limits on the buyer's ability to make decisions that could suppress the metric. Buyers should preserve enough operational flexibility to integrate the business without being locked into decisions that no longer make sense post-closing.

2. Representation and Warranty Insurance, Considered Early

RWI has become a standard feature of many private company deals, but its availability and pricing depend on underwriting that should start well before signing. Waiting until the purchase agreement is drafted to explore RWI often compresses the underwriting timeline and limits negotiating leverage on retention amounts, exclusions, and the scope of the seller's indemnification obligations. Raising RWI as part of the LOI conversation lets both sides plan the indemnity structure around it, rather than retrofitting the deal later.

3. The Scope of Exclusivity

Exclusivity periods are often negotiated on length alone, but the more consequential terms are what happens if the parties do not reach a signed agreement within that window, and what obligations survive termination. A seller granting exclusivity should think carefully about diligence cooperation obligations that might outlast the exclusivity period itself, and about carve-outs for unsolicited superior proposals if the transaction involves any auction dynamics.

4. Working Capital Targets and the True-Up Process

Disputes over working capital adjustments are among the most common post-closing disagreements, largely because the target and the calculation methodology are treated as a math exercise rather than a negotiated business term. Specifying the accounting methodology, the components included in the calculation, and a clear dispute resolution mechanism at the LOI stage avoids a protracted and often adversarial true-up process after closing.

5. Regulatory and Third-Party Consent Risk

Deals involving regulated industries, government contracts, or material customer or vendor relationships often carry consent or notice requirements that are easy to underestimate at the LOI stage. Identifying these requirements early, and allocating the risk and covenant obligations around obtaining them, prevents a late surprise from delaying or derailing a deal that otherwise has full alignment on price and structure.

The Takeaway

None of these issues need to be fully resolved in the LOI. But naming them, and agreeing on a framework for how they will be handled, saves significant time and goodwill later in the process. A short, well-scoped conversation before signing is almost always cheaper than the same conversation happening for the first time during definitive agreement negotiations.

This post is intended for general informational purposes and does not constitute legal advice. Please contact Jeffrey R. Glassman, Esq. in our Corporate and M&A group to discuss the specific facts of your transaction.