Between signing the LOI and drafting the definitive purchase agreement, the buyer often tries to convert soft terms into restrictive covenants. How do we manage the mechanical transition from LOI to definitive agreement without giving up operational control before the wire clears?

Question

Tyler Smith · Accepted Answer

The transition from a signed letter of intent to the definitive purchase agreement is where most deals suffer death by a thousand cuts. Buyers often use this period to introduce restrictive pre-closing operating covenants that limit your ability to run the business, alongside overly broad representations and warranties. To maintain operational control and protect your valuation, you must negotiate the specific boundaries of these covenants before signing the letter of intent, or push back hard during the drafting phase. Do not let the buyer require approval for standard operating decisions. Your leadership team must continue running the company using your weekly Level 10 Meeting to keep operations steady. Clearly define what constitutes ordinary course of business, establishing dollar thresholds below which you do not need buyer consent for capital expenditures, hiring, or vendor contracts. Additionally, limit the scope of the representations by insisting on knowledge qualifiers. This means you are only representing to facts of which your core leadership team, as defined by your Accountability Chart, has actual knowledge. This prevents the buyer from using minor, unknown operational errors as a pretext to re-trade the purchase price before closing. Keep your focus on hitting your quarterly Rocks to ensure performance does not dip during this critical window.