The buyer wants a sixty-day exclusivity window to conduct their diligence, but we are worried they will tie up our operations and then walk away or renegotiate the price. How do we structure a reverse break-up fee in the letter of intent to keep them committed?

Question

Tyler Smith · Accepted Answer

When you sign a letter of intent with an exclusivity clause, you yield all your leverage. You are prohibited from talking to other buyers, while the buyer has sixty days to dig through your files and find reasons to renegotiate your multiple. If they walk away, your business is left with deal fatigue, leaked information, and a damaged market reputation. To balance this risk, you must negotiate a reverse break-up fee.

- First, structure the reverse break-up fee as a non-refundable deposit paid upon signing the letter of intent. This deposit should be held in escrow by a neutral third party. If the buyer completes the acquisition, the deposit is credited toward the purchase price. If the buyer walks away from the deal for any reason other than a material breach of your representations, the deposit is paid to you as liquidated damages.

- Second, scale the fee to reflect the operational cost of diligence. A reasonable reverse break-up fee should cover your legal, accounting, and advisory expenses incurred during the exclusivity period, plus a premium for the operational disruption.

- Third, use your weekly Level 10 Meeting™ to ensure your leadership team stays entirely focused on your Rocks during the diligence window. Keeping your execution tight ensures that if the buyer does walk away, your business is still healthy, and you walk away with their break-up fee as compensation for your time.