A letter of intent is often treated as a placeholder, a handshake formalized on paper before the “real” documents come later. That framing understates what an LOI actually does in a healthcare practice transaction.

The LOI is where the deal’s real terms get set. Price, structure, exclusivity, financing contingencies, and diligence timelines are all established here, and once they are, unwinding them without losing the deal becomes difficult. It is also where both sides signal, before either has spent meaningfully on legal or financial advisors, how seriously they intend to approach the process.

An LOI Is a Signal, Not Just a Framework

A vague, informally drafted LOI does more than create ambiguity later. It tells the other side something about how the transaction is likely to go.

An LOI that defines a clear exclusivity period, a realistic diligence timeline, and a specific financing contingency signals a party that understands how the deal actually needs to move. An LOI built on a single price figure and a handshake, with the rest left to be worked out later, signals the opposite, and sophisticated buyers, sellers, and lenders read that signal accordingly.

Not every deal term belongs in the LOI, and overloading it can be counterproductive. The document does its job when it addresses what is important enough to guide diligence and drafting, and is explicit about which provisions are intended to be binding, such as exclusivity or confidentiality, and which are a statement of present intent subject to definitive documents. Leaving that distinction unstated is itself a common source of disputes once positions start to harden.

Payment Structures Need to Match the Price That Justifies Them

One of the more common and costly mistakes in an informal LOI is borrowing a payment structure without the pricing that supports it.

A deferred payout schedule, for example, is a familiar feature of private equity transactions, but it exists there because the price reflects a premium tied to the risk and time value of waiting for the back end. Importing that structure into a peer-to-peer transaction, without importing the valuation behind it, can quietly shift significant value away from the seller over the life of the payout, and neither side may recognize it until advisors are actually reviewing the numbers.

The same caution applies to earnouts, seller notes, and holdbacks generally. Each allocates risk and timing differently between buyer and seller, and each needs to be evaluated against the full economics of the deal, not adopted because it worked in a transaction that looked similar on the surface.

Where Informal LOIs Create Problems

The issues that surface from an informally drafted LOI tend to follow a pattern.

Diligence timelines are left undefined, which creates room for disagreement later about how long the process should reasonably take. Financing contingencies are omitted or vaguely worded, which leaves a buyer exposed if a lender’s terms do not match what the parties assumed. Exclusivity periods are unclear, which can leave a seller uncertain what commitments have actually been made.

None of these issues are unusual. What is costly is discovering them after months of negotiation, when both sides have already built expectations around terms the agreement was never built to support.

Where Over-Negotiated LOIs Create Problems

The opposite mistake is just as costly. An LOI is meant to set the framework that guides diligence and the definitive documents. It is not meant to settle every term in advance. When the parties treat it as the final agreement and negotiate provisions that will be revisited in the purchase agreement anyway, even simple terms can take months to resolve.

That time is not neutral. While the LOI remains open, the practice keeps operating, and its financial performance can drift away from the numbers that supported the price. Financing timelines slip, deal fatigue builds on both sides, and every additional month gives either party more time to reconsider. This is often how a transaction that made sense on paper stalls, fails, or never reaches definitive documents.

The discipline lies in knowing which terms need to be settled at the LOI stage and which belong in the definitive documents. Price, structure, exclusivity, financing contingencies, and diligence timelines belong in the LOI. Experienced counsel helps draw that line early, so negotiating effort goes where it actually affects the outcome.

Doctor-to-Doctor Deals vs. Multi-Doctor Transactions

The risk an informal LOI creates is not the same in every transaction.

In a smaller, doctor-to-doctor deal, an informal LOI often reflects two parties who know each other and are negotiating directly, and the economics tend to be simpler. Even here, an undefined diligence period or a missing financing contingency can derail a deal that otherwise made sense for both sides.

In a larger, multi-doctor or platform transaction, the same gaps carry more weight. The treatment of receivables and working capital, the role and compensation of selling practitioners after closing, and the retention of associates and key staff all need more precision, and an LOI that leaves these open invites a longer and more contentious renegotiation once diligence begins. A framework adequate for a straightforward two-doctor transition is usually not adequate once multiple providers, more complex financing, and a longer diligence process are involved.

Why This Belongs Early, Not Later

Bringing advisors in after an LOI is signed shifts their role from shaping the deal to managing what has already been agreed to. By that point, price has been discussed, expectations have been set on both sides, and any correction feels like a renegotiation rather than a clarification.

An LOI drafted with the actual mechanics of the transaction in mind, financing, timeline, structure, and the terms that will need to hold up under diligence, does more than protect either party’s position. It signals to the other side that the transaction is being approached with the seriousness it requires, which tends to keep the process moving rather than stalling once real terms are on the table.

The Takeaway

A letter of intent is not a formality to get out of the way before the real work starts. It is where the real work starts. The parties who treat it that way, and who involve experienced counsel before terms are set rather than after, are consistently in a stronger position through diligence, financing, and closing.

Contact Morgan Advisory Group

Morgan Advisory Group represents physicians, dentists, veterinarians, and healthcare investors in practice transactions across the country. If you are approaching a letter of intent on a healthcare practice transaction, contact the firm to schedule a confidential consultation.