The Letter of Intent That Kept a $3.4M Deal on Track

The situation

Karim had spent fourteen years as a sales director for a mid-sized industrial supplier, and he had decided it was time to own something instead of selling for someone else. The target was a specialty distribution business based in North Bay, built over two decades by its founder, with steady contracts across northern Ontario and a small fleet of delivery vehicles. The asking price was roughly $3,800,000, and after some early back-and-forth, Karim and the seller landed on a working number close to $3,400,000, subject to what due diligence would show.

He came to us with a one-page summary of terms he and the seller had scratched out over two dinners, and a strong desire to sign something before the seller changed his mind or another buyer appeared. He had two people helping him think it through informally: Eitan, a friend with construction project management experience who was considering investing alongside him, and Eitan's father Dov, a retired businessperson who had bought and sold a company of his own years earlier. Neither was a formal co-purchaser yet, but both were in the room for early conversations about how to structure the deal.

The instinct to move fast was understandable. Good businesses at fair prices do not sit on the market indefinitely, and a seller who feels strung along can lose interest. But a handshake understanding is not a deal, and the gap between we agree on a number and the business is actually worth that number is exactly where due diligence lives.

The problem

A letter of intent, sometimes called an LOI, is a document that sets out the key terms two parties expect a deal to follow before the lawyers draft the full purchase agreement. Most of an LOI is deliberately non-binding — price, structure, and conditions are all still subject to change once due diligence uncovers what it uncovers. But a handful of provisions inside it are usually made binding on purpose: confidentiality, exclusivity, and how costs are handled if the deal falls apart.

Karim's draft treated almost everything as settled. It named a fixed price with no adjustment mechanism, said nothing about what would happen if the financial statements did not match what the seller had represented, and gave no timeline for diligence at all. If we had let that document stand, Karim would have been exposed in two directions at once. If diligence turned up problems — a customer contract that could not be assigned, inventory worth less than booked, a piece of equipment nearing the end of its life — he would have little contractual room to renegotiate without appearing to breach a deal he had effectively already agreed to. And because the draft had no exclusivity period, the seller was technically free to keep shopping the business to other buyers while Karim spent time and money investigating it.

There was a second layer to the problem. Karim was still deciding whether to buy alone, bring in Eitan as a co-owner, or structure the purchase so Dov's capital sat behind it as a lender rather than an owner. Locking in one buyer identity too early, before financing and ownership were settled, risked having to unwind and re-paper the deal later — which sellers notice, and which can quietly erode trust even when nothing improper has happened.

What we did

1. Rebuilt the letter of intent around a clear binding/non-binding split. The price, adjustments, and closing structure were marked expressly non-binding and subject to satisfactory due diligence. Confidentiality, a 90-day exclusivity period preventing the seller from marketing the business to others, and a clause on who paid their own costs if the deal collapsed were made binding, so both sides knew exactly what they could rely on and what remained open.
2. Built in a price adjustment mechanism instead of a fixed number. Rather than a flat $3,400,000, the letter described the price as based on a set of financial assumptions — a target level of working capital and a stated run rate of earnings — with a formula for adjusting the price up or down if the closing numbers came in differently. This let Karim and the seller agree on a number in principle without either side having to guess exactly how diligence would land.
3. Left the buyer entity open but time-limited. The letter named Karim as the buyer, with the right to assign the agreement to a corporation he would incorporate before closing, and to add Eitan as a co-owner of that entity provided it was done within a defined window. This gave Karim room to finalize financing and ownership without forcing a second round of negotiation with the seller later.
4. Set a realistic due diligence timeline. The letter gave Karim's team roughly 60 days to review financial records, contracts, employee arrangements, and equipment condition, with a short extension available if a specific issue needed more time to resolve. This mattered because it gave the seller a concrete end date to hold onto, which is often what makes an exclusivity period acceptable to a seller in the first place.
5. Coordinated with Karim's accountant on the diligence findings. When the financial review turned up that a portion of revenue came from a single large customer contract set to expire within a year, our team worked with the accountant to quantify the risk and used the adjustment mechanism already built into the letter of intent to negotiate a modest reduction in price rather than reopening the entire deal.

The outcome

Due diligence took just under nine weeks. It surfaced the customer contract issue and a few smaller items — aging delivery vehicles that would need replacement within a couple of years, and a lease renewal that had not yet been formalized with the landlord. None of it was a deal-breaker, but all of it had value attached, and because the letter of intent had anticipated exactly this kind of finding, the conversation about price stayed collaborative rather than adversarial.

The final purchase price landed at roughly $3,250,000, a reduction of about $150,000 from the working number, reflecting the customer concentration risk and the near-term vehicle replacement costs. Karim closed the purchase through a newly incorporated company, with Eitan joining as a minority co-owner and Dov providing a portion of the purchase funds as a secured loan to the company rather than as an equity stake — a structure the letter of intent's flexible buyer clause had made possible without any renegotiation with the seller.

The seller, for his part, appreciated having a firm exclusivity window and a defined diligence period. He later told Karim that the clarity of the process was part of why he stayed patient through a price adjustment that, on another deal, might have felt like the buyer trying to chip away at the agreed number after the fact.

The full purchase agreement, negotiated after diligence closed, took roughly another five weeks to finalize and sign, largely because it needed to reflect the vehicle replacement timeline and the lease renewal as separate closing conditions rather than leaving them as loose ends. By the time the deal closed, close to five months had passed from the first dinner conversation to the final signature — a pace that felt slow to Karim in the moment but left him with a business whose risks he understood before he owned them, rather than after.

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