What should a seller negotiate in a letter of intent (LOI)?

Key points to negotiate in a sale LOI include: (1) headline enterprise value and equity consideration; (2) exclusivity period — sellers should push for 45–60 days, buyers prefer 90; (3) earn-out mechanics — if included, the metric (revenue vs. EBITDA), the period, and the measurement methodology; (4) break fee — a payment to the seller if the buyer terminates without cause; (5) working capital peg — the normalised working capital level included in the enterprise value; (6) closing conditions — regulatory approvals, financing conditions, and material adverse change definitions. An LOI is non-binding on most commercial terms but binding on exclusivity and confidentiality.

Should I accept an earn-out when selling my business?

Earn-outs can be appropriate when there is a genuine valuation gap between buyer and seller views of future performance — but sellers should approach them cautiously. Earn-out risks include: the buyer making post-close decisions (cost allocations, product rationalisation, pricing) that depress the earn-out metric; measurement disputes over what counts toward the earn-out calculation; and earn-out periods ending before the business performs as expected. If you accept an earn-out, prefer revenue to EBITDA (harder for buyers to manipulate through cost allocations), specify a 24–36 month period rather than 12 months, and document operational independence provisions that protect your ability to hit the metric.

How does competitive tension protect a seller in M&A?

Competitive tension — having multiple qualified buyers engaged simultaneously in a structured process — is the most powerful tool a seller has. When multiple buyers compete, each knows they risk losing the deal to another bidder if they cut price, demand unfavourable terms, or slow-walk due diligence. Sellers in a competitive process achieve higher enterprise values, cleaner terms, shorter exclusivity periods, and more limited earn-out requirements than sellers in bilateral negotiations. Amafi's confidential matching marketplace creates competitive tension by design — multiple qualified buyers see your business simultaneously.

What is a reps and warranties (R&W) insurance policy and should sellers get one?

Representations and warranties insurance (also called W&I insurance) is a policy that pays out if representations made by the seller in the purchase agreement prove to be incorrect. Buyers increasingly require it in APAC deals above USD 10M because it reduces their dependence on seller indemnities — the buyer claims against the insurer rather than the seller. For sellers, W&I insurance is generally beneficial: it limits post-close exposure, reduces escrow requirements, and provides a cleaner exit. The cost is typically 1–3% of the insured limit and is often split between buyer and seller in APAC transactions.

How much of the sale price is typically held in escrow?

Escrow amounts in APAC mid-market transactions typically range from 10% to 20% of the enterprise value, held for 12–24 months after completion to cover indemnity claims. When reps and warranties (W&I) insurance is in place, escrow requirements are usually reduced to a locked-box structure or a smaller general escrow (5–10%) because the insurer rather than the escrow fund is the primary claims recourse. Negotiating the escrow cap, the release mechanics, and the permitted claim types (what can and cannot be claimed against escrow) are all points to negotiate before signing the share purchase agreement.

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How to Negotiate When Selling Your Business

How to negotiate a business sale: LOIs, earn-outs, reps and warranties, and how competitive tension among buyers protects your price and terms.

Published July 22, 2026By Daniel Bae

Most business owners negotiate far less often than the buyers and investors they sit across from. A PE fund has completed dozens of transactions; a founder selling their business is doing it once. That asymmetry in experience is the single biggest risk to getting the price and terms you deserve — and the reason preparation and process matter more than most sellers expect.

Negotiation in a business sale is not a single conversation. It is a series of decisions made across months: what to include in the teaser, how to structure the buyer process, how to respond to the initial offer, what to concede in the LOI, what to hold in the SPA. Each decision either preserves or concedes leverage.

Amafi is a confidential M&A matching marketplace that connects business owners with qualified PE and strategic buyers. A licensed advisor from Lyndon Advisory negotiates on your behalf and runs the transaction process. Understanding the mechanics of negotiation helps you work more effectively with your advisor — and make better decisions at the moments that count.

What Is Actually Negotiable in a Business Sale

Almost everything in a business sale is negotiable, but not everything matters equally. Sellers who focus on headline price while ignoring earn-out risk, escrow mechanics, or working capital definitions often end up with a worse economic outcome than the top-line number suggests.

The commercial points that most determine your net outcome:

Headline enterprise value — the agreed total value of the business before adjustments
Consideration structure — how much is cash at close, how much is deferred, and under what conditions
Earn-out mechanics — if performance-based payments are included, the metric, the period, and the measurement methodology
Working capital peg — the normalised level of working capital included in the enterprise value
Exclusivity period — how long you are locked out of negotiating with other buyers after accepting an LOI
Reps and warranties scope and survival — what you are representing about the business and how long your exposure lasts
Escrow amount and release — what is held back after close and when it is released
Closing conditions — what allows the buyer to walk away, and whether you get a break fee if they do

Price is important. But a seller who achieves full price with a 30% earn-out over 12 months, a 20% escrow held for two years, and a broad indemnification scope may net less in real terms than a seller who achieves 10% less price with all cash, limited reps, and a 5% escrow for 12 months.

The Letter of Intent: What to Push For and What to Give

The letter of intent (LOI) — also called a heads of terms or term sheet — is where most of the commercial terms are set. It is generally non-binding on commercial terms but binding on exclusivity and confidentiality. Once the LOI is signed, your leverage falls significantly because you are locked out of negotiating with other buyers.

Push hard on these LOI points:

Exclusivity period. Buyers prefer 90-day exclusivity windows; sellers should push for 45–60 days. Shorter exclusivity limits your lockout and keeps the buyer moving. Include a provision that exclusivity terminates automatically if the buyer fails to meet agreed milestones (e.g., completing due diligence within 30 days, presenting a draft SPA within 45 days).

Break fee. Negotiate a reverse termination fee — a payment from the buyer to you if the buyer terminates without cause after the LOI is signed. Break fees are not standard in all markets but are increasingly common in APAC for mid-market deals. A break fee of 1–3% of enterprise value provides meaningful protection against a buyer using exclusivity to kill competing interest and then walking.

Earn-out limitations. If the buyer proposes an earn-out, push for: (a) revenue rather than EBITDA as the earn-out metric (EBITDA is more susceptible to cost allocation manipulation); (b) a minimum guaranteed payment floor even if targets are missed; (c) documented operational independence covenants protecting your ability to make decisions that affect the earn-out metric; and (d) a dispute resolution mechanism independent of the buyer’s financial reporting.

Working capital definition. The working capital peg mechanics — how normalised working capital is defined, what accounts are included, and how the completion accounts adjustment is calculated — can move the net proceeds by 5–15% of enterprise value. Push to define this precisely in the LOI, not leave it to the SPA negotiation.

Acceptable to give on:

The overall headline value. If the buyer’s initial offer is within 10–15% of your target and the terms are clean, a modest price concession in exchange for clean terms, short exclusivity, and limited earn-out is typically better economics.

Closing conditions. Regulatory approval conditions (where genuinely applicable) and material adverse change provisions for genuinely catastrophic events are standard. Buyers sometimes attempt to include financing conditions; push to exclude or limit these where the buyer is a PE fund with committed capital.

Price vs. Terms: Cash, Earn-Outs, and Rollover Equity

Business sale proceeds come in several forms, each with different risk and tax profiles:

Cash at close is the cleanest outcome. You receive the agreed enterprise value (adjusted for net debt and working capital) at completion. There is no execution risk beyond the deal closing. For sellers with no desire to remain involved post-close, all-cash structures are strongly preferred.

Earn-outs defer a portion of proceeds contingent on future performance. Buyers use earn-outs to bridge valuation gaps when they believe the seller’s earnings projections are optimistic. Sellers accept earn-outs to close a deal that would otherwise not happen at acceptable price. The mechanics are critical:

Metric: Revenue earn-outs are preferable to EBITDA earn-outs. EBITDA is controllable by the buyer through overhead allocations and shared service charges; revenue is harder to manipulate.
Period: 24–36 months gives you more runway to achieve targets than 12 months. Shorter periods benefit buyers because any underperformance eliminates the earn-out quickly.
Baseline: The earn-out should start from the completion date performance, not a prospective buyer-set target. Lock in the reference period clearly in the SPA.
Operational independence: Document covenants that prevent the buyer from making decisions post-close that would damage earn-out performance — pricing changes, product cuts, key account terminations, overhead loading.

Rollover equity involves the seller reinvesting a portion of proceeds back into the combined entity alongside the buyer. PE buyers use rollover equity (typically 10–30% of seller proceeds) to align the seller’s interests with the PE fund during the hold period. Rollover equity gives sellers upside from a future exit — if the buyer grows the business and sells for a higher multiple, the seller’s rollover participates in that gain. The risk is illiquidity and execution risk on the future exit.

Competitive Tension: Why a Process Protects Your Price

Bilateral negotiations — where a seller engages with only one buyer — almost always produce worse outcomes than competitive processes. The buyer knows they face no competitive pressure, can take as long as they want, and can chip price or terms at any stage without losing the deal.

Competitive tension — having multiple qualified buyers in simultaneous process — is the most powerful tool available to sellers. When a buyer knows there are three others at the same stage, they:

Submit higher initial offers (knowing low-ball offers will be eliminated)
Limit conditions and exceptions in the LOI
Accept shorter exclusivity periods (they want to close before competitors)
Move faster through due diligence to prevent others from getting ahead
Concede on earn-out structure and escrow terms to remain competitive on net economics

A structured sale process — teaser distribution to a curated buyer list, NDA-gated CIM release, management meeting rounds, and a competitive bid round — typically generates 15–30% higher enterprise value than a bilateral negotiation with the same buyer set, based on Bain & Company’s analysis of APAC private equity transaction data.

Amafi’s confidential marketplace creates competitive tension by design. Multiple qualified buyers are matched to your business simultaneously. You approve who receives your materials. The process maintains confidentiality while exposing your business to a competitive buyer pool without a public announcement.

Protective Mechanisms: Reps, Warranties, Escrow, and Working Capital

The post-LOI negotiation on the share purchase agreement (SPA) is where the detail matters. The primary seller-protection points:

Reps and warranties scope. Sellers represent that statements in the SPA are true at signing and completion. Narrower reps — more qualifications, higher materiality thresholds, knowledge qualifiers — limit post-close exposure. Key areas where sellers should push for qualification: pending litigation (knowledge qualifier), material contracts (knowledge qualifier plus materiality threshold), tax (knowledge qualifier for pre-acquisition periods), and environmental (knowledge qualifier plus materiality threshold).

Survival period. How long after close buyers can make claims. Standard survival is 18–24 months for general reps, 3–7 years for fundamental reps (title, authority, capitalisation), and until the statute of limitations for tax reps. Push to limit the general rep survival period and cap the maximum claim amount.

W&I insurance. Representations and warranties insurance shifts the buyer’s claims from the seller to an insurer. When W&I is in place, sellers are typically released from almost all post-close liability — the buyer claims against the policy rather than escrow or seller indemnities. The insurer conducts its own diligence on the representations, and the cost is 1–3% of the insured limit. W&I insurance in APAC has grown substantially and is now standard in deals above USD 10M. If a buyer proposes W&I, accept it — it is almost universally better for sellers.

Escrow amount and mechanics. Push for the smallest possible escrow, the shortest release period, and the most limited permitted claim types. A standard negotiating position for a seller with W&I insurance in place is a 5% locked-box escrow for 12 months covering fundamental representations only. Without W&I, escrow of 10–15% for 18–24 months is more typical.

Working capital peg. The completion accounts adjustment reconciles the actual working capital at close against the normalised working capital agreed in the LOI. Disputes over working capital adjustments are among the most common sources of post-close litigation in M&A. Negotiate the peg calculation methodology, the accounting policies used, and the dispute resolution mechanism in the SPA — not the completion accounts.

How AI Matching Changes Seller Negotiating Position

Historically, the buyer who first approached an owner had an inherent advantage: they set the terms of the initial conversation, anchored the price, and could create artificial urgency.

AI-matched marketplaces change this dynamic. When a business owner registers on Amafi and multiple qualified buyers are matched simultaneously, the competitive dynamic is restored from the first engagement. The seller controls who receives materials and when. The initial offer from any buyer is shaped by awareness that others are also engaged.

The practical effect: sellers who use a matching process rather than responding to an unsolicited bilateral approach consistently receive more competitive initial valuations, more limited earn-out requirements, and shorter exclusivity periods — because the buyer knows the deal is competitive from day one.

“The biggest negotiating mistake I see from sellers is treating the first serious offer as the final deal. A business that attracted one qualified buyer almost certainly has more. The question is whether the seller created the conditions for a competitive process — or allowed a single buyer to anchor the negotiation from the beginning. Amafi’s marketplace exists precisely to restore that competitive dynamic for private business owners who don’t have the institutional infrastructure that PE funds and corporate acquirers bring to every deal.” — Daniel Bae, Founder & CEO, Amafi.ai

See who would buy your business →

What to Do When Someone Wants to Buy Your Business — how to respond to an unsolicited approach and whether to run a competitive process
How to Sell Your Business Confidentially — the mechanics of a confidential sale from preparation to close
Selling to a Strategic Acquirer — what corporate buyers look for, synergy premiums, and negotiation dynamics specific to strategic deals
Selling to Private Equity — PE deal structure, earn-out norms, and what happens to your business post-close
Types of Buyers in M&A — how PE, strategic buyers, family offices, and search funds approach price and structure differently
How Long Does It Take to Sell a Business? — what the timeline looks like from LOI through to completion
Letter of Intent (LOI) — what an LOI includes and what it commits each party to
Earn-Out — earn-out structures, mechanics, and common disputes
Working Capital Peg — what the working capital adjustment mechanism covers and how disputes arise
Success Fee — how M&A advisor fees work and what the Amafi success-fee model means for your net proceeds

About the author

Daniel Bae

Founder & CEO, Amafi

Daniel is an investment banker with 15+ years of experience in M&A, having advised on deals worth over US$30 billion. His career spans Citi, Moelis, Nomura, and ANZ across London, Hong Kong, and Sydney. He holds a combined Commerce/Law degree from the University of New South Wales. Daniel founded Amafi to solve the pain points in M&A, enabling bankers to focus on what matters most — delivering trusted advice to clients.

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