Letters of Intent: An LOI Glossary for Mergers and Acquisitions

Are you interested in selling your MSO or DSO?

If so, you are probably looking forward to receiving an LOI (letter of intent). When selling a large business or organization like a med spa, MSO, or DSO, potential buyers will send you their letter of intent detailing their interest and initial offer price. 

Before they can receive an LOI, the seller must go through the process of gathering data, creating DAC marketing pieces, and putting all of this information out to the network of buyers.

What is an LOI?

When a large business or organization is selling their business, buyers will send a letter of intent, better known as an LOI, to the seller. Getting down to the nitty-gritty, an LOI outlines the true structure of the deal. Think of it in real estate terms. When you’re ready to put an offer on a house you’d like to buy, you and your realtor send the seller your proposed price, how you plan to pay for it, and other stipulations. 

An LOI is similar. There are 3 sections of an LOI: Structure, Employment, and Buyer. 

We’ve created this LOI glossary to break down the pieces and terms that make up each section.


Within a structure you must consider the sale price, EBITDA, Cash at Close, Earnout, and Equity Roll.

The sale price:

What is the initial number you are putting in your LOI? How did you get that number, and what did you calculate this offer based on?


The EBITDA stands for earnings before interest, taxes, depreciation, and amortization. It is the profitability and value of your organization from a cash flow perspective. EBITDA is purchased on multiples and the multiplier is what they are buying for. Every industry has varying multiple ranges. EBITDA multiplied by the multiple to get the sale price   

Cash at Close

Cash at the close is the total amount of money the buyer must pay to finalize the purchase. If the buyer is purchasing the business at a certain price point, they will put in a large percentage of the finalized price. They’ll keep the rest of the money available to reinvest and roll into the new company. This strategy allows them to retain skin in the game and continue to play a part in running the business. This is also known as the Equity Roll


In order to earn the investment, the seller must maintain a certain level of EBITDA.  The pricing structure of an earnout is based on the performance of the business. If the business is at its peak performance, the seller will earn part of the purchase price. Many times there is a section of the contractual agreement that states if the seller can grow the business to “X”, they can earn more money from the initial equity roll. 


Oftentimes, the previous owner of a company will not walk away immediately after the buyer finalizes the deal. They will stay with the company and become an employee. There are many components that go into employment post-acquisition:


What does the seller’s compensation look like post-sale? No longer owning the company, what does the compensation package look like after transitioning into an employee?

Employment Contract

What contractual obligations must the seller follow? The contract should outline if you are allowed to practice in the particular industry again, if you can leave the company, and if you are permitted to take your employees with you. This is also known as the Non-Solicit Clause.


What happens to the seller’s equity in the company if they leave the company sooner than the contractual agreement? If the seller does not stay with the company for the contracted amount of time post-sell, there is a risk of not receiving the initial equity agreed on at the time of the acquisition or sale. 

When it comes to the seller’s equity, it is crucial to hire the proper legal representation to ensure their interest is being protected to the best of their ability. Maintaining equity in a company post-sale is a tricky business, hence the importance of proper representation.


There are two types of buyers; Financial and Strategic buyers. Both types of buyers have their pros and cons, so it is important to have an understanding of each to decide which of the two is best for your business:

Financial buyer:

Financial buyers bring money to the table to invest in you. The current C-Suite still runs the company after a financial buyer invests. This type of buyer is looking at what synergies can be created through this financial investment. 

Strategic buyer:

A strategic buyer is coming in with an already existing platform. This type of buyer already has synergies in place. They have the ability to plug right into the organization because the company is absorbing into another company that already exists.  Strategic buyers already have scalable efficiencies and are able to pick up equity right off the bat. 

Tip: When an LOI comes in, it is important to understand where it can help your organization grow. As a seller, take your time asking the potential buyer questions, reviewing their past investments and companies, and grasping their plan for the future of your company.

Receive Your Ideal LOI with Skytale Group

Skytale Group is a leading healthcare advisory firm for mergers and acquisitions. We walk DSOs and MSOs through an elevated, classical M&A process. Our experience and customized approach lead clients to realize the full value of their business and match them to the “right” buyer. Contact us to learn more about how our extensive process ensures mutual success and a long-term partnership.