- · The Letter of Intent (LOI) marks the transition from exploratory interest to defined commercial terms, and the structural choices made at this stage shape the entire negotiation that follows.
- · Under Swiss law, the LOI is classified as an innominate contract; the obligation to complete the transaction is typically non-binding, while specific provisions such as exclusivity, confidentiality, and cost allocation are often binding.
- · Failing to lock in the working capital adjustment methodology at LOI stage leaves the seller exposed to buyer-favorable repricing during the definitive purchase agreement phase.
- · Exclusivity periods, due diligence scope, and binding/non-binding clause delineation deserve the same attention as the headline price.
There is a moment in every M&A process when the conversation shifts from "we are interested" to "here is what we are prepared to commit to." That moment is the Letter of Intent. For SME owners in Switzerland considering a sale or succession, and for institutional buyers and family offices evaluating acquisition targets, the LOI deserves considerably more structural attention than it typically receives.
The LOI is often treated as a formality — a bridge document between initial discussions and the real negotiation. That instinct is understandable, and it is also costly.
Swiss law does not define the Letter of Intent as a distinct legal instrument. As the SWLegal IBA Negotiated M&A Guide Switzerland Chapter confirms, the LOI is classified as an innominate contract (Innominatkontrakt) — a contractual form recognized in Swiss practice but without a dedicated statutory regime.
The practical consequence of this classification is significant. The SWLegal guide notes that specific LOI points covering the transaction description and main commercial terms are typically non-binding, while remaining provisions including exclusivity, confidentiality, cost allocation, and break-up fees are usually binding. International Business Law reinforces this picture, confirming that "typically, a LoI does not oblige to conclude the main contract, but regulates... the consequences of the failure to conclude the main contract."
The word "typically" carries weight here. Swiss practice allows considerable flexibility in how binding and non-binding provisions are structured — which means the LOI must explicitly and unambiguously separate the two categories. Ambiguity in that delineation tends to resolve itself in the courts, which is not where either party wants to be.
Drawing from Swiss M&A practice as documented in the SWLegal IBA Negotiated M&A Guide and the Lex Futura M&A Deal Process for SMEs guide, a well-constructed LOI addresses eight areas:
1. A description of the transaction and the common commercial objective of both parties. 2. The main terms and conditions of the proposed transaction, including indicative pricing. 3. The timing and method by which due diligence access will be provided. 4. Exclusivity provisions, commonly referred to as a no-shop clause. 5. Confidentiality terms governing information exchanged during the process. 6. An explicit delineation of which clauses are binding and which are not. 7. Cost allocation — specifying who bears expenses in the event the transaction does not close. 8. The applicable law and jurisdiction for any disputes.
Each of these elements is substantive. Treating any one of them as boilerplate invites renegotiation pressure at the definitives stage, when the leverage dynamics have shifted materially in the buyer's favor.
Of all the structural omissions that sellers make at LOI stage, the failure to specify the working capital adjustment methodology is among the most consequential. The LockRoom blog's LOI clause dissection (2026) states the problem directly: "There is no industry-standard working capital methodology. By signing the LOI without pinning the methodology, the seller is agreeing to whatever methodology the buyer proposes during definitives, which will be buyer-favorable."
The mechanism is straightforward. Working capital adjustments — the mechanism by which the final purchase price is calibrated to the actual financial condition of the business at closing — depend entirely on how "working capital" is defined. If the LOI refers only to "customary" methodology without further specification, that word is undefined and effectively meaningless.
A seller with appropriate legal and financial counsel will address this at LOI stage by attaching a schedule that specifies the applicable accounting standards (GAAP or local Swiss standards), the precise line items included in the calculation, any specific cost allocations, and the measurement period (commonly a trailing twelve months). The LOI can also reserve a defined period, such as 30 days, for the seller to audit and dispute any proposed adjustment, with unresolved disputes referred to a neutral accountant. This is not excessive caution; it is basic structural discipline.
The no-shop clause is a standard and commercially reasonable feature of Swiss LOI practice. A buyer committing to significant due diligence expenditure is entitled to a period of exclusivity during which the seller refrains from soliciting or entertaining competing offers. The question is one of proportion.
As the Vista Business Group has observed, excessive exclusivity periods can tie up the seller unnecessarily, reducing leverage and delaying alternatives if the deal ultimately does not close. An LOI that grants exclusivity without a clearly defined termination date, or without provisions addressing what happens if the buyer fails to meet agreed milestones, creates an asymmetric position that favors the buyer at the seller's expense.
The appropriate approach is to calibrate the exclusivity period to the buyer's realistic due diligence timeline, include a defined end date, and consider whether milestone-based extensions are appropriate for more complex transactions.
The LOI is also the correct instrument for defining when due diligence commences and what information categories the buyer may access. A well-drafted LOI specifies whether access is immediate or phased, and identifies the categories of materials to be shared: financial records, tax documentation, legal agreements, intellectual property, data protection compliance, employment matters, and operational information.
This gating function matters because premature or unlimited disclosure of sensitive business information, before the buyer has committed to key economic terms, can undermine the seller's negotiating position and create competitive risk if the transaction does not proceed. The sequence — agree on terms first, then open the data room — reflects sound commercial practice.
For Swiss SME transactions, the overall process from initial contact to closing typically spans four to twelve months, as documented in the Lex Futura M&A Deal Process guide. The LOI phase itself typically runs two to four weeks from first draft to signature, depending on the complexity of the parties' respective requirements and the degree of contention over binding versus non-binding provisions. Due diligence, once access is granted, generally requires several weeks, with contract negotiations proceeding in parallel.
These timelines reward preparation. Sellers who arrive at the LOI stage with organized financial records, a clear understanding of their working capital position, and a view on acceptable exclusivity terms are in a materially stronger position than those who treat the LOI as the beginning of their preparation process.
The economic logic of the LOI phase is straightforward. At the point of LOI signature, the seller retains maximum leverage: the buyer has invested relatively little in the process, alternative buyers remain theoretically available, and detailed proprietary information has yet to be disclosed. After LOI signature, the buyer gains access to sensitive information, incurs due diligence costs that create psychological and financial pressure to close, and the seller's alternatives narrow.
Structural issues left ambiguous at LOI — valuation methodology, working capital mechanics, exclusivity duration, cost allocation, due diligence scope — tend to surface again during the definitives phase, when the buyer's information advantage is greatest. At that point, renegotiation pressure is harder to resist.
A clear, explicit LOI reduces that renegotiation risk for both parties and accelerates the path to a signed purchase agreement. Buyers benefit from the discipline as well: a counterparty who understands what they have agreed to is less likely to create friction at the signing table.
The Letter of Intent is the moment to shift from exploratory discussion to defined commercial terms. The parties who treat it with the same precision they bring to the definitive purchase agreement tend to close faster and with fewer surprises.
This post reflects market observation and general information about Swiss M&A practice. It does not constitute legal, financial, or investment advice. Parties engaged in a transaction should seek qualified legal and financial counsel appropriate to their circumstances.
