From Letter Of Intent To Closing: A Deal That Almost Slipped

The situation

Zainab started cleaning offices on her own eighteen years ago, working evenings around a day job. She built the business one contract at a time, brought on Ayesha as a partner nine years later to run the books and manage scheduling, and by this year the two of them owned a commercial cleaning company with contracts across several municipalities, a payroll of over sixty part-time and full-time staff, and revenue in the mid seven figures. Neither of them drew much of a personal salary. Almost everything went back into the company — new equipment, a second depot, better wages to keep good staff.

A competitor in Belleville, run by a man named Tomasz who was ready to retire, approached Zainab about selling. The two companies served overlapping territory, and combining them meant Zainab and Ayesha could absorb Tomasz's client list, his depot, and most of his crew without duplicating overhead. They agreed on a purchase price of roughly $4,600,000 for the shares of Tomasz's company and signed a letter of intent — a short document setting out the price, the structure, and the major terms both sides had agreed to, with a target closing date about ten weeks out.

A letter of intent is usually not a binding contract for the deal itself. It is a roadmap. The real, enforceable obligations come later, in a definitive share purchase agreement negotiated once each side has done its due diligence — the process of verifying that the business is what it appears to be before money changes hands. Zainab and Ayesha came to Treadstone Law once the letter of intent was signed, wanting a share purchase agreement drafted and a closing that would actually happen on schedule.

What due diligence found

Due diligence on Tomasz's company turned up nothing dishonest, but it turned up something that mattered just as much: uncertainty. About a third of Tomasz's revenue came from a multi-year cleaning contract with a public-sector client. That contract included a clause requiring the client's written consent before it could be assigned to a new owner following a change of control of the company holding it. Tomasz had never asked for that consent, because he had never needed to before.

This is a common feature of business acquisitions and one of the reasons a letter of intent gets translated into a longer, more careful definitive agreement before anyone closes. A share purchase agreement is built around conditions precedent — specific things that must happen, or be confirmed, before either side is obligated to complete the transaction. Financing being in place is a condition precedent. So is a landlord's consent to an assignment of a lease. So, here, was the public-sector client's consent to the contract surviving a change of ownership.

Without that consent, Zainab and Ayesha would be buying a company whose largest single contract might not survive the sale — and that contract was a meaningful part of what they were paying $4,600,000 for. The public-sector client's approval process, once contacted, turned out to run on its own timeline, tied to an internal procurement review that nobody on either side of the deal could accelerate. The target closing date was ten weeks out. The client's own estimate for a decision was eight to twelve weeks, with no guarantee it would land on the shorter end.

The deal now had a structural problem. Signing a definitive agreement that made the consent a hard condition risked a closing delayed indefinitely, with Tomasz's retirement timeline and Zainab's operational plans both left hanging. Waiving the condition and closing anyway risked Zainab and Ayesha paying full price for a contract that might not transfer at all.

What we did

1. Built the condition into the price, not just the timeline. Rather than treating the client consent as a simple yes-or-no gate on closing, the share purchase agreement was drafted to let the deal proceed on the scheduled date whether or not the consent had come through by then, with the purchase price adjusted depending on the outcome.
2. Negotiated a holdback tied to the specific risk. A portion of the purchase price — roughly $450,000, reflecting a fair estimate of that one contract's value to the combined business — was structured as a holdback, meaning it stayed in escrow with a neutral third party rather than going to Tomasz at closing. If the consent came through within a further defined window after closing, the holdback would be released to him. If it did not, the price would be reduced by that amount and the balance returned.
3. Kept pursuing the consent in parallel, not sequentially. Rather than waiting for the definitive agreement to be finalized before approaching the public-sector client, we had Tomasz initiate the consent request the same week the letter of intent was signed, so the clock on their internal review was already running by the time the rest of the deal terms were settled.
4. Drafted disclosure schedules that put the risk in writing. The share purchase agreement's disclosure schedules — the detailed lists attached to the agreement that qualify or explain the seller's representations and warranties — spelled out exactly what was known and unknown about the contract's transferability, so neither side could later claim they had been surprised by something the other side already knew.
5. Prepared Zainab and Ayesha for two closing scenarios. We walked through what operations would look like on day one under each outcome — full price and the contract retained, or reduced price and a plan to rebid or replace that revenue — so the decision to close would not be made under pressure at the last minute.

The outcome

Closing happened on the originally scheduled date. The public-sector client's decision had not yet come through — their internal review ran closer to the twelve-week estimate than the eight-week one — so the $450,000 holdback stayed in escrow rather than going to Tomasz. Zainab and Ayesha completed the acquisition of the rest of the business, the depot, the equipment, and the transferable client contracts at the agreed price minus the holdback amount, roughly $4,150,000 changing hands at closing.

The consent came through about five weeks later, but on modified terms: the public-sector client agreed to continue the contract with the new ownership, but only for a further eighteen months rather than the original contract's remaining term, with a formal rebid to follow. Under the terms negotiated in the share purchase agreement, that qualified as a partial success rather than a full one. Roughly two-thirds of the original holdback was released to Tomasz to reflect the value that did transfer; the remainder was retained by Zainab and Ayesha to offset the shortened term.

Neither side got exactly what they had hoped for at the letter of intent stage. Tomasz received less than the full $4,600,000 he had originally been promised, and had to accept that outcome months after he expected to have fully exited the business. Zainab and Ayesha absorbed a smaller, shorter-term version of the contract they had planned around, and had to begin preparing a rebid submission earlier than expected. But the deal closed on schedule, both sides avoided a collapsed transaction and the legal costs of unwinding one, and the risk that could have sunk the whole acquisition was priced and contained instead of left to chance.

A year on, the combined company kept most of Tomasz's former staff, retained the depot, and was preparing its rebid for the public-sector contract with a stronger combined track record than either company could have shown alone.

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