Offer Letter

In M&A contexts, an offer letter is typically the term used for a non-binding expression of interest that a potential buyer submits to a seller outlining proposed acquisition terms before a formal letter of intent (LOI) or definitive agreement. It represents the buyer's preliminary indication of price, structure, and key terms — similar to an IOI (Indication of Interest) but often with more specificity and sometimes used interchangeably with the term LOI depending on the deal stage and advisor preference. In the employment context, an offer letter is the formal document extending employment to a candidate — both uses appear frequently in M&A diligence and closing mechanics.

In the acquisition sense, offer letters serve to advance the deal process from initial interest to structured negotiation. A buyer who submits an offer letter is signaling meaningful intent: they've typically conducted preliminary analysis, assessed valuation range, and are proposing specific terms. Unlike a purely non-binding IOI, some offer letters are structured to be substantially binding on key terms (price, structure) while leaving other terms for the definitive agreement.

For SMB M&A, the terminology varies by deal team and geography. Some practitioners use "offer letter" and "LOI" interchangeably; others treat the offer letter as a preceding, less formal document before the structured LOI. In a typical process flow: IOI → Offer Letter → LOI → Definitive Agreement. The offer letter in this progression is more specific than the IOI but less legally structured than the LOI.

In the employment context — which intersects M&A during the diligence and closing phase — offer letters for key employees who are being retained or newly hired post-acquisition are important documents. Key employee offer letters in connection with acquisitions typically cover: compensation (base salary, bonus, equity participation in the new structure), severance provisions (particularly relevant if the acquisition changes the employee's employer entity), non-compete and non-solicitation obligations, and transition period commitments.

For acquired business owners who are transitioning from employee-owner to employee under new ownership, the offer letter formalizes the post-close employment relationship. Key terms to negotiate: salary (which should reflect market rate, not historical owner compensation), bonus targets and metrics (which should be clearly defined and achievable), equity participation (rollover equity or new grants), term of employment commitment (or at-will terms and what triggers severance), and what happens if the role changes materially post-close.