How a Letter of Intent Saved a London Practice Sale Mid-Diligence

The situation

Thao had built her independent insurance-adjusting practice over more than a decade, incorporating it several years in once the caseload from insurer clients made that the sensible structure. Her spouse, Minh, an electrician by trade, held a minority share in the corporation, a common enough arrangement for income-splitting purposes that had never mattered much day to day. By the time Thao decided to sell, the practice had a steady roster of insurer clients who assigned it claims to investigate and adjust, a small staff, and enough of a track record that a buyer would not be starting from nothing.

The buyer was Reza, an experienced adjuster who wanted to acquire an established book of business rather than build one from scratch. The two had known each other professionally for years and had already discussed, informally, what a sale might look like. Once they agreed on a rough price, roughly $1,100,000 for all of the shares in Thao's corporation, they came to our team to put that understanding into a proper letter of intent before either side spent real money on lawyers and accountants for a full due diligence process.

A letter of intent, sometimes called an LOI, is a document that sets out the key terms two parties have agreed on before they commit to a binding purchase agreement. Most of an LOI is deliberately non-binding: price, structure, and closing conditions are all subject to change once due diligence is complete. But a few clauses are drafted to bind the parties immediately, most importantly an exclusivity clause, sometimes called a no-shop clause, under which the seller agrees not to negotiate with any other buyer for a defined period. That clause exists because due diligence is expensive. A buyer spending tens of thousands of dollars on accountants and lawyers wants some assurance the seller will not simply take a better offer once the diligence work is done.

What due diligence uncovered

The LOI our team drafted for Thao and Reza did more than fix a headline price. It set out the deal structure as a share purchase, meaning Reza would buy the shares of Thao's corporation directly rather than purchasing its individual assets, and it built in a price-adjustment mechanism tied to the corporation's trailing earnings and its client contracts. That mechanism turned out to matter within weeks.

Reza's accountants, working through the practice's financial records during the diligence period the LOI had allotted, flagged that one insurer client accounted for close to 40 percent of the practice's annual revenue. That kind of concentration is not unusual for a small adjusting practice, where relationships with a handful of insurers can carry most of the book, but it is a real risk for a buyer: lose that one client and the economics of the purchase change substantially. Our team's review of the underlying service agreement found the harder problem. The contract with that client contained a clause requiring the insurer's written consent before the practice could be transferred to a new owner, and it gave the insurer discretion to terminate the relationship on notice if a change of control occurred without that consent being sought and granted.

When Reza's team raised the client contract with the insurer directly, as part of normal pre-closing diligence, the response was lukewarm. The insurer's representative said only that they would need to see the new owner's credentials and would not commit to continuing the relationship automatically. For Reza, that raised the real possibility of paying $1,100,000 for a practice that could lose nearly half its revenue within months of closing. Separately, our review of the corporation's books turned up an outstanding shareholder loan of roughly $60,000 owed to Thao and Minh personally, drawn down over several years and never formally repaid or documented with interest, which needed to be cleared before the shares could change hands cleanly.

What we did

1. Went back to the LOI's price-adjustment mechanism rather than treating the client issue as a deal-breaker. Because the letter of intent had anticipated that diligence might surface issues affecting revenue, it already contained a framework for adjusting price against verified problems instead of leaving the parties to renegotiate from a standing start once trust between them was already strained.
2. Proposed a holdback tied to client retention. Rather than reducing the purchase price outright for a risk that might never materialize, our team proposed that roughly $150,000 of the purchase price be held back in escrow at closing, to be released to Thao only if the insurer client renewed its relationship with the practice within a defined period after the sale.
3. Approached the insurer directly, with Thao's cooperation, to formally request consent to the change of control. Rather than leaving the request informal, we prepared a written submission setting out Reza's credentials and experience, which gave the insurer a proper basis to grant consent rather than simply expressing hesitation on a phone call.
4. Documented and resolved the shareholder loan before the share purchase agreement was finalized. Thao and Minh repaid the outstanding balance to the corporation ahead of closing, so the corporation Reza was buying carried no unrecorded obligations back to its former shareholders.
5. Relied on the LOI's exclusivity clause to keep the process on track through the uncertainty. With the exclusivity period still running, Thao could not shop the deal elsewhere even as the client issue created friction, which kept both sides focused on solving the specific problem rather than either walking away.
6. Built the retention condition and holdback mechanics directly into the share purchase agreement. The final agreement specified exactly how client retention would be measured, over what period, and how the escrowed funds would be released or forfeited, so there was no ambiguity for either side once closing arrived.

The outcome

The insurer granted its consent to the change of control about five weeks after the formal request, once it had reviewed Reza's credentials, and confirmed it intended to continue assigning claims to the practice under its new ownership. The sale closed roughly ten weeks after the letter of intent had been signed, with the shareholder loan cleared, the holdback funded in escrow, and the client relationship formally continuing under the new owner.

The client did stay. Six months after closing, once the retention period in the share purchase agreement had run its course without the insurer reducing its volume of assigned claims, the escrowed $150,000 was released to Thao in full. Reza ended up with the practice he had wanted, the client base it depended on, and no unpleasant surprises about undocumented debts left behind in the corporation. Thao received her full agreed price, just on a schedule that reflected the real uncertainty that had existed at the time of closing rather than one that pretended it did not exist.

What made the difference was not luck with the insurer's decision. It was that the letter of intent, signed weeks before anyone knew a client contract would become a problem, had already built in a mechanism for exactly this kind of situation: a way to adjust for a verified risk without either side having to renegotiate the whole deal from scratch or walk away from months of work. Deals that rely only on a price and a handshake tend to fall apart the moment diligence turns up something unexpected, because there is no agreed process for handling it. This one had a process, and the process held.

What you can learn from this