The weekend signature that costs a seller their second bidder

The sequence is common enough to be worth setting out. An owner has two credible buyers at the table. On a Friday evening the faster of the two sends over a letter of intent, two pages, marked non-binding, with a price at the top of its range. It gets signed on the Sunday to keep the momentum going. What has been signed is ten weeks of exclusivity, an enterprise value with no definition of net debt or normalised working capital, and a confidentiality clause that runs in one direction only. By week seven the buyer has rebuilt EBITDA its own way, the price has moved down, and the other bidder has committed to a different target.

Why intelligent people sign it anyway

Two things make this easy to do. The document says non-binding at the top, and someone has said the real negotiation happens in the share purchase agreement. Both are true and neither protects the seller. The meaning of an LOI in M&A is narrower than the label suggests: what is non-binding is the obligation to sell at that price, not the machinery built around it. The rest of the document, the part nobody reads twice, is a contract. We have argued elsewhere why a well-drafted LOI is critical in a Belgian deal. This piece is about what your signature has already done.

There is a second layer that has nothing to do with what you sign. Book 5 of the Belgian Civil Code sets out the pre-contractual phase in writing. Article 5.15 says the parties are free to start, conduct and break off negotiations, and that they must act in accordance with the requirements of good faith. Article 5.16 obliges each side to give the other the information that the law, good faith and custom require, having regard to the standing of the parties, their reasonable expectations and the subject of the contract. Article 5.17 confirms that you can incur liability towards the other side during negotiations, before any contract exists. Signing the LOI does not create those duties. It gives them content, because you have now written down what you told the other party you would do.

What a letter of intent already binds the moment you sign

Read an M&A LOI as two documents stapled together. One is an indication of price and structure either side can still walk away from. The other is a set of obligations that bind on signature and that a Belgian court treats like any other contract.

• Confidentiality binds on signature, and it sets what you may say to your bank and your co-shareholders, and how long that duty survives the talks.
• Exclusivity and the no-shop bind on signature, and they remove your right to speak to another party for a fixed period, whoever calls you.
• Costs and governing law bind on signature, and they decide who carries the adviser fees if the deal dies and which court hears any argument.
• Process and timetable are binding in effect, because they fix the diligence scope and the date by which a draft SPA has to exist.
• Price and structure do not bind at all, and they anchor every later conversation anyway, because the buyer will not go above them.

Confidentiality deserves more attention than it gets. Under the Belgian rules on trade secrets, information is protected only if it is genuinely secret, has commercial value because it is secret, and its holder has taken reasonable steps to keep it confidential. Your confidentiality clause and your data room protocol are those reasonable steps. A one-way clause, or one that expires when negotiations stop, weakens the protection you want on the day a buyer leaves with your customer list in their head.

What breaking off a negotiation costs

Owners assume that a buyer who burns ten weeks and then retrades can be made to pay for it. Article 5.17 is more sober. The injured party is put back in the position it would have been in had there been no negotiations at all, so adviser fees, internal cost and opportunities lost with third parties. Only where the other side created the legitimate expectation that the contract would be concluded can compensation extend to the benefits expected from the deal that never happened.

Two things follow. Check whether the LOI excludes or caps article 5.17, because well-advised buyers do exactly that and the exclusion is easy to miss. And if you want a hard consequence for a buyer who walks, it has to be a fixed sum. Article 5.88 allows a judge to reduce a compensation clause that is manifestly unreasonable, of its own motion or at the debtor's request, having regard to the damage and all the other circumstances, so a break fee written as a deterrent rather than as a genuine estimate of loss can be cut down.

The money is not the real loss. Competitive tension does not survive a ten-week pause. An owner who ran a proper sell-side process to produce two bidders spends the exclusivity period dismantling the one thing that gave them pricing power, and the buyer reads the calendar just as well.

How a buyer uses the exclusivity window

Look at exclusivity from the buyer's side and it stops looking like a formality. In those weeks the buyer confirms financing, takes the file through an investment committee or a board, runs due diligence, prices whatever it finds, and decides whether to hold the number or move it. Each of those steps is work the buyer has to do and each is a reason the price can change. The seller has nothing to do in those weeks except answer questions, unless the LOI gave the seller something. So negotiate what the window buys you, not only how long it runs.

• Start the clock when the data room opens and the first request list arrives, not on the date of signature, because three weeks of set-up should not come out of your exclusivity.
• Tie the period to deliverables rather than to a single end date, so that a written financing confirmation by one named day and a diligence report by another are conditions of the window continuing.
• Keep the right to receive an unsolicited approach and to tell the buyer you received one, which costs the buyer nothing and preserves your position if they go quiet.
• Refuse automatic extension, because an extension is a negotiation and its price is a shorter list of conditions, a confirmed funding letter, or a deposit.

None of this stops a buyer who intends to retrade. It makes retrading expensive in time, the only currency in circulation while the clock runs.

The conditions that hand a buyer a free option

"Subject to satisfactory completion of due diligence" is the most expensive line in a letter of intent. Satisfactory to whom, judged on what? Written that way it is a right to walk away for any reason, held for free for as long as exclusivity lasts. The workable version names what the buyer still has to confirm: the customer contracts it has not seen, the environmental permit, the tax treatment of the management package. A closed list can be worked through, an open standard cannot. Financing deserves the same test: a buyer who cannot produce a term sheet from a bank or a committed fund wants the business off the market while they look for the money.

Merger control is in neither party's gift. If the transaction meets the Belgian thresholds, a combined turnover in Belgium above EUR 100 million with at least EUR 40 million in Belgium for each of at least two of the undertakings concerned, the concentration has to be notified to the Belgian Competition Authority and cannot be implemented before clearance. A straightforward case can go through the simplified procedure, and a contested one runs considerably longer. That standstill belongs in the LOI timetable and in the gap you plan between signing and closing, not in a surprise conversation in week nine.

The price line deserves the same care. Where the offer contains an earn-out, the LOI is where the metric and the measurement period are either defined or left for later, and whatever is left for later gets settled by whoever holds more leverage then. An LOI in an investment round works the same way under the name term sheet.

The dups approach

A letter of intent takes a disproportionate share of a mandate's hours here, because it is the last document a seller signs while still holding every card. What comes back is a two column mark-up. On one side sit the clauses that bind the moment you countersign, each costed in weeks of exclusivity given away and in adviser fees at risk if the deal dies. On the other sit the mechanics that have to be settled in the same week: the trigger and the length of exclusivity, the closed list of diligence conditions, and the definitions of net debt and normalised working capital that decide what the headline number actually pays out. Both columns are usually agreed inside forty-eight hours, against a deadline the buyer chose, which is why the pricing answer and the drafting answer have to arrive together rather than a week apart.

On Full Deal Execution mandates the work starts before any letter exists, with the process that produces a second interested party, and the letter is then drafted to keep that tension alive for the whole exclusivity period. Where an owner already holds a signed offer, Specialist Support settles one question fast: which two or three lines can still be reopened before anything is countersigned, and what each of them is worth asking for.

One rule is worth adopting whatever you decide about advisers. Nobody should sign an exclusivity clause on a Sunday. Send us the letter and you will know by Monday which of its lines you can no longer take back.

Questions owners ask before signing

What does an LOI mean in M&A?

An LOI, or letter of intent, records the price and structure a buyer proposes and the process both sides will follow to reach a signed SPA. The price part is normally non-binding. The process part is not: confidentiality, exclusivity, costs and choice of forum take effect the day the LOI is signed.

Is a letter of intent legally binding in Belgium?

Partly, and the split is deliberate. Commercial terms are usually expressed as an intention, while confidentiality, exclusivity, cost allocation and governing law are drafted to bind. Separately, articles 5.15 to 5.17 of the Belgian Civil Code require both sides to negotiate in good faith and allow liability for breaking off negotiations wrongfully, whether or not anything has been signed.

How long should exclusivity in an LOI last?

Long enough for the buyer to complete the diligence they have scoped, and not a week longer. Tie it to deliverables such as a financing confirmation and a diligence report by named dates rather than to a round number of weeks, start the clock when the data room opens, and make any extension something the buyer pays for.

Johan Luntumbue, Manager at dups