We are negotiating an LOI and the buyer is insisting on a sixty-day exclusivity window with an automatic extension clause. How do we negotiate specific diligence milestones and break fees into the LOI to keep the buyer from stalling and dragging out the close?

Question

Tyler Smith · Accepted Answer

Exclusivity is a buyer's greatest asset because it takes you out of the market, stripping away your leverage and leaving you vulnerable to delays and re-trades. While buyers require time to perform due diligence, you must prevent them from stalling the process.

First, reject any automatic extension clauses. Exclusivity should be limited to forty-five days, with extensions granted only if the buyer meets specific, objective milestones. These milestones should include delivering a detailed Quality of Earnings report by day twenty, securing financing commitments by day thirty, and presenting the first draft of the purchase agreement by day thirty-five.

Second, integrate a break-up fee or a non-refundable diligence deposit. If the buyer fails to close for reasons other than a material misrepresentation on your part, this deposit should be released to you to cover your legal and advisory expenses.

Third, maintain operational pressure. Use your weekly Level 10 Meeting™ to keep your leadership team focused on hitting targets. If the buyer sees your operational metrics continuing to rise during the exclusivity period, they will move faster to secure the deal. Clear milestones and financial penalties keep the buyer honest and ensure you maintain momentum from LOI to close.