The parties may sign a letter of intent setting out the principal points upon which they have reached tentative agreement. This is typically signed by the parties following initial due diligence (but prior to completion of a more fulsome diligence review) and prior to negotiation of the definitive transaction agreement. The level of detail and format for a letter of intent can vary from deal to deal.

The letter of intent is useful in identifying important issues between the parties early in the process, before they have invested substantial time and money. Its disadvantages are that it may delay the preparation and signing of a definitive contract. Except for certain matters, such as confidentiality, 'standstill' and the like, a letter of intent is typically not legally binding between the parties, but, if not drafted carefully, it could inadvertently create binding commitments.

A US party will be reluctant to make important changes to the terms set out in the letter of intent absent a significant change in the target or in the circumstances of the transaction. A letter of intent may also provide a basis for legal liabilities if one of the parties fails to negotiate the definitive agreement in good faith. Furthermore, the letter of intent may address significant matters, such as limitations on the liability of the seller, but the letter typically will not include representations and warranties of the parties. A non-US buyer should carefully consider and review all material terms contained in the letter of intent with legal counsel before signing it.

• Exclusivity: It is very common to include exclusivity provisions in a letter of intent.
• Break fee: It is not common to include break fees in a letter of intent, as they are rarely included in private M&A transactions.
• Confidentiality: Legally binding confidentiality provisions are some of the key terms in a letter of intent. They are often set forth in a separate confidentiality agreement and referenced in the term sheet.

In the US, it is common for the buyer and seller to enter into preliminary agreements before negotiating the acquisition agreement.

In a private deal, the letter of intent often contains a strict exclusivity provision, or "no-shop" covenant, that prohibits the seller from soliciting, encouraging or negotiating offers from third parties. A no-shop covenant will also encompass restraints on sharing non-public information with parties other than the buyer and put an obligation on the seller to ensure that none of its agents engage in third-party negotiations. An exclusivity agreement will commonly span the period of 30-60 days after the parties sign the letter of intent, but the length of time may vary.

Break fee provisions are not commonly included in a letter of intent and are more common in public M&A deals. To the extent that they are included in a private M&A transaction, they will be negotiated into the definitive acquisition agreement.

The potential buyer of a business and the target company and/or sellers generally enter into a confidentiality or non-disclosure agreement prior to the commencement of due diligence. This is usually the first agreement signed by the parties in a potential transaction. Confidentiality agreements are often unilateral, imposing confidentiality obligations on the buyer with respect to the information provided by, or on behalf of, the target. However, a buyer will generally seek to make such obligations mutual if the target is also going to perform due diligence on the buyer (e.g., in a stock-for-stock acquisition).

In the US, a letter of intent is generally non-binding (except as set forth in specific provisions, such as those related to exclusivity and confidentiality) and, as such, does not provide a basis for liability in the event the parties do not ultimately sign a purchase agreement with respect to the non-binding provisions.

The implied duty of good faith is likewise very limited at the preliminary negotiation stage, and generally does not apply until the parties sign a purchase agreement. There is a limited duty of good faith and fair dealing that applies when the definitive purchase agreement is signed.