LOI Signed: What Searchers Should Not Underestimate Next

The LOI is signed. Valuation, structure and the main commercial terms are agreed.

From here, diligence, financing, tax and the SPA all move at the same time. A material finding in one area can quickly affect the rest of the deal.

Decide early what a finding changes

Take a simple example.

The LOI is based on EUR 2 million of EBITDA.

During diligence, EUR 200,000 of that EBITDA turns out to be unsustainable.

That calls for a quick decision.

• Does the agreed multiple still apply and the price comes down?
• Does the price stay where it is?
• Do you bridge part of the gap through seller financing or an earn-out?
• Or does the case still work despite the lower EBITDA?

The same applies to capex, working capital, customer concentration, tax or key contractual issues.

It helps to define early which types of findings can affect price, structure or financing.

Translate enterprise value into the actual purchase price

Many search deals start with a simple formula:

EUR 2 million EBITDA × 5 = EUR 10 million enterprise value.

The actual purchase price may still look very different.

Cash, debt, working capital, shareholder loans and other debt-like items can move the number materially.

Purchase price mechanics should therefore be worked through early.

Otherwise, buyer and seller can agree on the same enterprise value and still end up with different expectations around the amount payable at closing.

Keep updating the financing model

The financing model should move with the deal.

If sustainable EBITDA changes, capex increases or seller financing is restructured, those changes should feed back into the model immediately.

Debt, equity and returns all move with them.

That gives the buyer an early view on whether the structure still works and where adjustments may be needed.

Start the SPA early

The SPA should also start early.

A lot of points look simple in the LOI. They become much more detailed once drafting begins.

• How is the final purchase price calculated?
• What warranties does the seller give?
• Which risks need a specific indemnity?
• What are the liability limits?
• How does seller financing work?
• How long does the seller remain involved after closing?

These points regularly take longer to negotiate than expected.

Starting the SPA only after diligence is complete can put unnecessary pressure on the exclusivity period.

One tracker for the whole deal

One thing that works well in practice:

A single open items tracker.

For each issue, four points are usually enough:

• Issue.
• Owner.
• Deadline.
• Impact on price, SPA, financing or closing.

That gives the team one view of what is genuinely critical and what can simply be worked through.

After the LOI, speed of decision-making matters

A DD finding only becomes useful once its consequence for the deal is clear.

• Does it affect price?
• Does it require protection in the SPA?
• Does the financing need to change?
• Is it a closing item?

Keeping those questions live throughout the process usually makes the final stretch much cleaner.

And it reduces the risk of several unresolved issues surfacing at the same time shortly before signing.