Sellers read the LOI once. Buyers read it five times.

The LOI is the document where most sell side leverage is won or lost. Roughly one in four LMM deals retrade between LOI and close. The retrade is rarely a surprise. Most retrades were written into the LOI on day one, hidden in language that looked innocuous when the seller signed it.

This post walks the six phrases that quietly hand leverage to the buyer in nearly every LMM LOI, the rewrites that hold leverage on the seller side, and the 3 Term Lock framework that decides whether the LOI is worth signing at all.

What the LOI is for

The LOI sets the framework for the deal. The price, the structure, the exclusivity period, the closing conditions, the diligence scope. Definitives operationalize the LOI; they do not rewrite it. Anything ambiguous in the LOI becomes a fight in definitives, and the leverage in those fights goes to whichever party benefits from the ambiguity.

In practice, that party is almost always the buyer. The buyer drafts the LOI. The buyer's counsel uses standard language that has been refined across hundreds of buyer-favorable deals. The seller is reviewing under time pressure, often without specialist M&A counsel.

The result: the seller signs an LOI that looks like a commitment but functions as an option for the buyer to walk, retrade, or grind down the price during exclusivity.

The 6 phrases to always redline

These appear in nearly every buyer-drafted LMM LOI. Each is small. Combined, they are the difference between a closed deal at the LOI price and a 12 percent retrade in week 8 of exclusivity.

Phrase 1: "automatically extending"

In context: "exclusivity period of 90 days, automatically extending in 30-day periods unless terminated in writing."

This is the leverage trap. The seller signed thinking they had 90 days of exclusivity. By month four, they are still locked in, the buyer has all the diligence information, and any other interested buyers have moved on. Auto-extending exclusivity gives the buyer optionality at the seller's expense.

Rewrite: "Exclusivity Period: 60 calendar days from execution. No automatic extension. Either party may terminate by written notice with 5-day cure."

Phrase 2: "subject to satisfactory completion of due diligence"

In context: "the obligations to close are subject to satisfactory completion of buyer's due diligence."

"Satisfactory" is undefined. The buyer can walk for any reason and call it diligence-related. The phrase looks fair but is unenforceable as a seller protection.

Rewrite: Replace with specific, objectively measurable closing conditions. "Closing conditions: (a) accuracy of seller representations as of closing, (b) compliance with covenants, (c) third-party consents from [enumerated list], (d) no MAC where MAC is defined per Schedule 5.1."

Phrase 3: "in Buyer's reasonable discretion"

In context: "EBITDA calculated by Buyer in its reasonable discretion."

"Reasonable discretion" gives the buyer the tiebreaker in any subjective dispute. The phrase appears in calculations, materiality determinations, and closing condition assessments. In arbitration, buyers prevail in roughly four out of five disputes that turn on "reasonable discretion" language.

Rewrite: Replace with specific, objective standards. If the standard cannot be made objective, use "good faith determination subject to the dispute resolution mechanic in Section X."

Phrase 4: "customary working capital adjustment"

In context: "the purchase price is subject to a customary working capital adjustment."

"Customary" is undefined. There is no industry-standard working capital methodology. By signing the LOI without pinning the methodology, the seller is agreeing to whatever methodology the buyer proposes during definitives, which will be buyer-favorable.

Rewrite: "Purchase price subject to working capital adjustment calculated per attached Schedule 4.2 (locked GAAP methodology, fixed cost allocations, 12-month TTM averaging period). Seller has 30-day audit right. Disputes to neutral accountant."

Phrase 5: "in accordance with Buyer's standard methodology"

In context: "post-closing working capital and indebtedness shall be calculated in accordance with Buyer's standard methodology."

This phrase shows up in larger PE-led deals. The buyer's "standard methodology" is buyer-favorable. By the time the seller sees the actual methodology, exclusivity has been signed and there is no leverage to fight it.

Rewrite: Same as phrase 4. Pin the methodology in the LOI itself with an attached schedule. Don't defer to buyer's standard.

Phrase 6: Any exclusivity period longer than 90 days

This is not a phrase but a number. Exclusivity periods over 90 days are the buyer building optionality. Practitioner standard for LMM is 60 days, with 90 acceptable for complex deals (regulatory approvals, foreign buyers, material financing contingencies). Anything longer is a leverage trap.

Rewrite: 60 days. Negotiate up to 90 if the deal requires regulatory clearance or specific financing. Anything longer needs a real reason and probably a break fee compensating the seller for the longer lockup.

The 3 Term Lock framework

The 3 Term Lock is the practitioner rule that decides whether an LOI is signable. Every LOI must lock three things:

Lock the period

60 days max. No automatic extension. Termination requires written notice. Cure period both ways. Break fee for buyer walkaway.

If you cannot lock the period, the buyer has unlimited optionality. The exclusivity is the leash; without a fixed end date, the seller is on a leash that never ends.

Lock the price

Firm dollar figure or tight range (no more than 10 percent spread between low and high). Working capital methodology pinned in the LOI itself, not deferred to definitives. Indebtedness definition tied to GAAP. Transaction expense allocation defined.

If you cannot lock the price, the LOI is an opening offer, not a commitment. The seller is starting the negotiation again at week 8 from a worse position.

Lock the conditions

Each closing condition specific and objectively measurable. No "satisfactory completion of due diligence." No "Buyer's reasonable discretion." No "customary." Material adverse change carve outs that swallow the rule are stricken.

If you cannot lock the conditions, the buyer can walk for any reason and call it a contractual right.

The seller's playbook on the LOI

The leverage in the LOI negotiation is highest before signing. After exclusivity is granted, the seller has agreed not to talk to other buyers, which means there is no credible BATNA to threaten with.

This means:

1. Get LOIs from at least two buyers before deciding which to advance. Without competitive tension, the seller has no leverage in the LOI redline process.
2. Redline aggressively in the LOI window. Send back redlines on every phrase above. Most buyers expect pushback and will accept reasonable counter-language.
3. Pin everything material in the LOI itself. Schedules, methodology, definitions. If it is going to matter in definitives, write it now.
4. Reserve the right to terminate. Make sure the LOI has a clean termination right that does not require buyer consent or extended notice.

What the strong LOI looks like

Compare the buyer-favorable version most LOIs start as:

Now the rewrite:

Same paragraph, very different deal.

Tools and references

The full LOI Checklist (5-page PDF) is free at /resources/loi-checklist. Includes section-by-section guidance for all 7 LOI sections, the 6 phrases with full rewrites, and the 3 Term Lock framework.

If the deal includes an earnout, see The Earnout Structuring Matrix. If you are about to launch a sell side process and want the diligence prep tight before LOIs come in, see the Sell Side Diligence Prep Checklist.

Bottom line

The LOI is the document where most sell side leverage is won or lost. Six phrases buyers slip in. Three things every LOI must lock. Sellers who internalize these reduce retrade frequency and hold price.

Sellers read the LOI once. Buyers read it five times. Read it five times yourself.

Not legal advice. Have counsel review and customize before use on any specific deal.