By Panoramic Capital Partners
How a Deal Actually Works: From IOI to Close
What the M&A process really looks like, and where the money is won or lost.
A business owner sat across from us, a little dazed.
He had just received his first serious offer to buy his company. $18M, all cash, from a PE-backed strategic buyer. He’d spent 19 years building the business.
He had no idea what happened next.
“Do I just sign this?” he asked, sliding the Indication of Interest across the table.
We spent the next hour walking him through what that document actually was, what it was not, and how far he was from a closing wire.
By the end of the conversation, he understood the process. He also had a list of things he wished he’d known six months earlier.
That conversation is the one we want to have with you before a buyer calls, not after.
The M&A process moves fast once it starts. The decisions you make in the first few weeks set the terms for everything that follows.
Here is what the process actually looks like, from the first written expression of interest to the day the wire hits, and where value is won or lost along the way.
We walk through this with business owners regularly. The goal is always the same: no surprises.
Before diving into each stage, it helps to see the full sequence. A well-run sale process moves through five distinct phases:
IOI (Indication of Interest) > LOI (Letter of Intent) > Due Diligence > Purchase Agreement > Close
Each phase has its own dynamics, its own leverage points, and its own opportunities to gain or lose value. We will walk through each one in order.
One important note on what happens before the IOI even arrives.
A properly run sale process does not wait for a single buyer to call. It goes out to the market proactively, often contacting 300 or more private equity firms and as many strategic buyers as can be identified on a targeted basis. Interested parties sign non-disclosure agreements (NDAs). Those who proceed receive a confidential information memorandum (CIM), a detailed document that gives buyers the information they need to submit an informed IOI.
This is a significant operational lift. It is typically managed by an investment bank or M&A advisor, and it is the mechanism that creates the competitive tension we referenced earlier. The IOI is not something that simply arrives in your inbox. It is the output of a deliberate process designed to put multiple buyers at the table at the same time.
The Indication of Interest: An Opening Bid, Not a Promise
The Indication of Interest (IOI) is a letter from a potential buyer expressing serious interest in acquiring your business, along with a preliminary valuation range.
It is not a binding document. It is not a contract.
It is an opening bid.
The number on that page is based almost entirely on what the buyer has been told about your business, not on anything they have independently verified. Those assumptions will be tested during diligence, and the price can move in either direction.
A typical IOI includes a proposed purchase price range, high-level deal structure assumptions (stock sale versus asset sale), the buyer’s stated intentions for the business, and an outline of the diligence they want to conduct. Most are two to four pages and deliberately non-committal.
So what do you do with it?
Here is what most sellers miss: the IOI is the moment of maximum competitive leverage, and it disappears quickly.
If you have run a proper process, you should have multiple parties at the table simultaneously.
Competition among buyers is one of the most reliable mechanisms for improving price and terms.
A single IOI with no competing interest is a fundamentally weaker position than most sellers realize until it is too late to fix.
It also matters who is submitting the IOI, not just what they are offering.
Strategic buyers (operating companies in your industry) price businesses differently than financial buyers (private equity firms). They also have very different agendas after close.
A strategic buyer may pay a premium because your business adds immediate value to their platform. But they may also have limited interest in retaining your team or preserving what you have built.
A PE buyer is building toward a future exit and will manage the business accordingly.
Neither is inherently the right answer. But understanding the buyer’s motivation before you advance is essential.
Once you select a buyer and advance to the next stage, the leverage dynamic shifts in their direction.
The Letter of Intent: Your Last Moment of Full Leverage
Once you have selected a buyer, the parties negotiate a Letter of Intent (LOI).
This defines the primary terms of the transaction before due diligence and legal drafting begin. It is still mostly non-binding, but it sets the framework for everything that follows.
The LOI covers purchase price, payment structure (cash at close, seller notes, earnouts, rollover equity), exclusivity provisions, and the timeline for completing diligence.
What is the most underestimated provision in an LOI?
The exclusivity clause.
This is the period during which you cannot solicit or entertain other offers. Once you sign an LOI, you are off the market. The buyer knows this. The clock works in their favor from that point forward.
A useful comparison is real estate. When you buy a home, you sign a purchase agreement that comes with multiple outs: an inspection contingency, a financing contingency, an appraisal contingency. Either party has defined mechanisms to exit the deal if something does not check out.
Business transactions work differently. The IOI and LOI are intention documents. They are largely non-binding, with one significant exception: the exclusivity provision. That single binding term is what takes you off the market. The purchase agreement, which comes later, is where all terms actually lock in. Until that point, either party can functionally walk away by letting the exclusivity period expire.
This means that during the LOI stage, you are bound to one buyer while remaining exposed to everything diligence might surface. The length of the exclusivity period, and what happens if it expires without a signed purchase agreement, deserves careful negotiation before you commit to it.
If diligence runs 90 days, you have been locked up for three months with a single counterparty who is actively looking for reasons to reduce the price.
Deal structure is also where sellers most commonly leave significant money on the table.
Purchase price is one number. What you actually receive is another.
An earnout that adds $3M to the headline but is structured to be nearly impossible to achieve is not worth $3M.
A seller note at below-market interest rates has a real cost. Rollover equity carries risk that needs to be evaluated, not simply accepted.
Are you looking at the headline number or the actual economics? Most sellers look at the headline.
We work through the real economics with every client before they advance past the LOI. The difference is often significant.
The LOI is also the last moment before you have handed the buyer a full view into your business. Once diligence opens, they see your financials, your customer contracts, your key employee agreements, and your operational vulnerabilities.
Anything they find can, and often will, be used to renegotiate.
Negotiating the LOI hard before that information exchange begins is not aggression. It is preparation.
Due Diligence: What You Are Actually Walking Into
Due diligence is the buyer’s systematic investigation of everything you have represented about your business.
It is thorough. It is time-consuming. And if you have not prepared for it, it can feel like an audit conducted by someone who is both meticulous and motivated to find problems.
Financial diligence examines your trailing three to five years of financials, the quality and sustainability of your EBITDA, working capital dynamics, debt levels, and the reliability of forward projections.
Legal diligence covers contracts, intellectual property, litigation exposure, regulatory compliance, and the cleanliness of your corporate records.
Operational diligence looks at your systems, your management team, your customer relationships, and your core processes.
If key person risk exists, diligence will find it and price it.
If your top three customers represent 60% of revenue, that concentration will be reflected in a lower multiple.
If your financials are disorganized, you will spend weeks on the back foot explaining variances instead of building buyer confidence.
Ask yourself this: would a stranger walking into your business today be able to run it without you?
If the honest answer is no, buyers will see it. And they will price it accordingly.
The solution is not to survive diligence. It is to prepare for it.
We help sellers get in front of diligence before the buyer arrives. That preparation changes the dynamic entirely.
Sellers who conduct a sell-side quality of earnings (QoE) analysis before the process begins arrive at the table knowing exactly how their financials will look through a buyer’s lens.
They have identified the add-backs they can defend, addressed the issues they can fix, and eliminated the information asymmetry that otherwise favors the buyer.
Sellers who skip this step frequently find themselves renegotiating from a position of weakness.
In our experience, the cost of a sell-side QoE is recovered many times over in the final transaction value.
One other element that catches sellers off guard: the management presentation.
After the LOI is signed, the buyer will want to meet with you and your leadership team in a structured setting.
This is not a casual conversation. It is an evaluation of your team’s depth, your own role in the business, and whether the company can perform without you.
How does your team perform under pressure? How do you handle a question about customer concentration you would rather not answer?
Experienced sellers treat the management presentation as seriously as the LOI negotiation itself.
The Purchase Agreement: Where Intentions Become Legal Obligations
Once diligence is substantially complete, the lawyers draft the definitive purchase agreement.
This document governs the actual transfer of ownership. It is long. It is detailed. And every provision in it carries financial exposure.
The purchase agreement covers representations and warranties (your formal attestations about the state of the business), indemnification obligations, closing conditions, working capital mechanisms, and any post-close obligations.
Representations and warranties deserve particular attention.
You are guaranteeing in writing that what you have told the buyer about your business is accurate.
If a representation turns out to be false, even unknowingly, you can be held liable for the resulting losses.
Representation and warranty (R&W) insurance has become common in middle market deals as a way to transfer some of this exposure from you to an insurer.
It is worth exploring early in the process, not as an afterthought in the final days of drafting.
Escrow arrangements are another area to negotiate carefully.
Buyers will typically seek to hold back a portion of the purchase price in escrow for a period of months following close.
The size, duration, and claims process all deserve active negotiation. We push on this consistently on behalf of sellers. The difference between a 15% escrow for 24 months and a 7.5% escrow for 12 months is not a minor detail. On a sizable transaction, it is a material difference in what you actually walk away with.
Close: The Finish Line That Keeps Moving
Closing is the day the wire arrives. Years of work crystallize into a number.
It should feel like a finish line. Often it does.
But the financial outcome is not always fully settled at close.
Post-close working capital adjustments, earnout measurement periods, and potential indemnification claims mean the final number may not be determined for months or even years after the transaction.
Working capital adjustments are one of the most common sources of post-close disputes.
The purchase agreement establishes a target working capital level at closing. If actual working capital falls below that target, you write a check to the buyer. If it exceeds the target, they pay you.
The methodology for calculating working capital and the definition of what is included are negotiated in the purchase agreement.
Sellers who accept the buyer’s proposed definitions without scrutiny sometimes write unexpected checks on a deal they thought was fully settled.
That is one of the most frustrating surprises in a transaction, and one of the most avoidable.
Post-close transition obligations also deserve specific attention.
A vague transition obligation can become an open-ended commitment that occupies your time long after you expected to be free. Define the scope, the duration, and the compensation for any post-close involvement precisely, not informally.
Where Value Is Won and Lost
Value is not simply set at the LOI and delivered at close.
The final outcome traces directly to decisions made at each stage. Knowing where value is most commonly gained and lost gives you a practical framework for protecting what you have built.
Value is gained by:
- Running a competitive process that generates multiple IOIs simultaneously
- Entering diligence prepared, with a sell-side QoE that removes information asymmetry
- Negotiating deal structure at the LOI stage, not after
- Understanding the true economics of earnouts, seller notes, and rollover equity before you commit
- Having tax and wealth planning in place before the transaction closes
Value is lost by:
- Accepting the first offer without testing the market
- Entering diligence unprepared and giving buyers ammunition to retrade
- Misunderstanding earnout mechanics until it is too late to negotiate differently
- Underestimating escrow exposure and indemnification risk
- Not having personal tax planning in place before close
The owner who sat in our office with that first IOI eventually closed at $21.5M, nearly 20% above the initial offer.
He did not get there because he was lucky. He got there because he understood the process well enough to use it.
That is available to you too.
Your Action Steps
Before an offer arrives:
- Get your financials clean, current, and organized
- Identify and document the key person dependencies in your business
- Build your personal financial plan so you know what a successful outcome actually looks like
- Engage a CPA with M&A experience to model the tax impact of a potential transaction
When the first IOI arrives:
- Do not respond alone, bring your advisor into the conversation immediately
- Evaluate the assumptions behind the number, not just the number
- Assess whether other buyers should be in the process before you advance
Before you sign the LOI:
- Negotiate deal structure, not just price
- Understand the earnout mechanics, escrow terms, and exclusivity period in detail
- Consider commissioning a sell-side QoE before diligence opens
The Bottom Line
The M&A process rewards sellers who understand the terrain and punishes those who do not.
Every stage, from the IOI to the closing wire, contains moments where value can be gained or surrendered. Most of those moments are foreseeable. Most of the mistakes are avoidable.
Knowing what is coming, and being prepared for it, is the most powerful advantage a seller can have.
That is what we are here to help you build.
Disclosure: This article is for informational and educational purposes only and does not constitute legal, tax, or investment advice. All scenarios and examples referenced are illustrative composites drawn from common transaction patterns and do not represent a specific client or transaction. Past results are not indicative of future outcomes. Readers should consult qualified legal, tax, and financial advisors before making any decisions related to the sale of a business. Panoramic Capital Partners is a registered investment adviser.