What an LOI is, and how it’s different and the same as an NBIO
A letter of intent is the document a buyer sends once it's serious. It names a price and sets out how the deal would work. It also asks for something back: a period where you talk to no one else while it checks your business.
In Australia, NBIO (non-binding indicative offer) is the usual name, and people often say LOI to mean the same thing. The label matters less than when the offer arrives and which clauses the document says are binding.
| Document | When you see it | What usually binds |
|---|---|---|
| NBIO or IOI, early round | Early. A price range, before full due diligence, often from several buyers. US deals call this an IOI (indication of interest) | Confidentiality, costs, governing law |
| NBIO or LOI, exclusive | Later. One buyer wants to move and asks for time alone with your business. In Australia it's often still called an NBIO | Exclusivity, confidentiality, costs, governing law |
| MOU (memorandum of understanding) | The same stage as an exclusive LOI | Usually the same clauses as an LOI |
| Heads of agreement, term sheet | The same stage. Sometimes headed "binding" | Whatever the parties objectively meant |
We've written separately about the MOU and the exclusivity clause inside it. This piece is about timing: what you give up the moment you sign.
Where it sits in a sale
- Information memorandum. Buyers get the story and the numbers. See what an IM is.
- Indicative offers. Several buyers give you a price range.
- Management meetings. The serious ones meet you and your team.
- LOI with exclusivity. One buyer gets a period alone with your business.
- Due diligence. Its accountants and lawyers go through everything.
- Sale agreement. The binding contract, including how the final price is worked out.
- Completion. The money moves.
Look at step four. Before it, buyers compete for you. After it, one buyer sets the pace.
Your bargaining power peaks the day before you sign the LOI. From the day after, the buyer has it.
What binds, and what doesn't
In Australia the starting point is a 1954 High Court case, Masters v Cameron. It sorted preliminary agreements into three kinds:
- The parties have agreed everything and mean to be bound now. The formal contract just writes it up properly. Binding.
- The parties have agreed everything, but some of it waits until the formal contract is signed. Binding.
- The parties don't mean to be bound at all until they sign a formal contract. Not binding.
Later courts have added a fourth kind. The test is always what the parties objectively meant, so the words on the page matter. Most LOIs say the price and terms are non-binding, then carve out the clauses that do bind: exclusivity, confidentiality, who pays costs, and which law applies.
Even "binding" has holes. In 2019, ASX-listed AMA Group signed a document headed "Binding Heads of Agreement" to buy a group of smash repair businesses. AMA later ended it, saying a condition hadn't been met: its own board's approval. The NSW Court of Appeal sided with AMA and overturned an order that would have forced the sale through ([AMA Group v ASSK Investments [2021] NSWCA 45](https://www.twobirds.com/en/insights/2021/australia/thinking-ahead-with-heads-of-agreement)).
Conditions the buyer controls are exits the buyer controls.
None of this is legal advice. Your lawyer reads the LOI before you sign it.
A public example: eight weeks, then no deal
Listed companies have to announce this stage, so it's one of the few places you can watch it happen. In 2025, AUB Group, an ASX-listed insurance broking group, received a takeover proposal from Arbutus, an affiliate of EQT.
| Date | What happened |
|---|---|
| 13 Sep 2025 | First non-binding proposal: A$43 cash a share |
| 26 Sep 2025 | Raised to A$45 |
| 8 Oct 2025 | AUB's board gave the buyer six weeks of due diligence. Exclusivity was a condition of the proposal |
| 7 Nov 2025 | The buyer reconfirmed A$45. Exclusivity extended by two weeks, and CVC allowed to join |
| 1 Dec 2025 | The consortium said it wouldn't make a binding offer at A$45. Talks ended |
Sources: AUB's ASX announcements of 28 October, 10 November and 1 December 2025. AUB's shares fell more than 17% at one point that day (Insurance Business).
AUB had a board, advisers and a public share price. It still ended with no deal. A private founder in the same spot has none of that cover, and the buyer has now seen everything.
It isn't rare. A Herbert Smith Freehills Kramer review of non-binding offers for ASX-listed companies from 2022 to 2024 found that 45% of the time, a private equity bidder was given due diligence and then withdrew its offer during it (HSF Kramer, via Mondaq). That's listed-company data. The rate for private companies isn't publicly stated.
What to settle before you sign
Everything below gets harder to win once you're exclusive. Get it into the LOI, in writing.
- What the price is based on. Usually cash-free, debt-free, with a normal level of working capital. Ask how they'll set that level, because it moves the cash you receive. See enterprise value, explained.
- How much you get at completion. Split the headline into cash on the day, deferred payments, earn-out and any shares you roll over.
- How the price gets adjusted. In US private-company deals, working-capital price adjustments now appear in more than 90% of transactions (SRS Acquiom). Agree the method now: completion accounts or locked box.
- Share sale or asset sale. It changes your tax. Ask your accountant before you sign, not after.
- The conditions. Finance, board approval, key customer contracts, regulators. Every condition is a door the buyer can walk out of, so keep the list short. If the deal is big enough for the ACCC's mandatory notification rules, in force since 1 January 2026, put clearance in the timetable (Clifford Chance).
- How long exclusivity runs, and what ends it. A fixed end date and no automatic rollover. Ask for it to end early if the buyer cuts the price without new facts.
- What due diligence covers. A list and a timetable, so it doesn't become a fishing trip.
- Your role after the sale. How long they want you, in what job, on what terms.
How long should exclusivity run?
There's no public standard for private Australian deals. The public data:
- AUB: six weeks of due diligence, then a two-week extension.
- HSF Kramer expects private equity bidders for listed companies to need about five to six weeks of exclusivity to finish due diligence and agree documents (HSF Kramer, via Mondaq).
Shorter is better for you, as long as it's realistic for the buyer. Long exclusivity with a soft end date is how a deal drifts.
The real fix starts earlier. If two buyers already know your business when the first LOI arrives, you can make them compete for the right to sign it. That's what strategic sale planning is for.
An LOI isn't the buyer saying yes. It's the buyer asking you to stop shopping. Sign it when the terms are worth that.
Usually not on price and terms, but usually yes on clauses like exclusivity and confidentiality. Courts ask what the parties objectively meant, starting from the categories in Masters v Cameron. Have your lawyer read the binding clauses before you sign.
Often nothing. In Australia, NBIO is the usual term and LOI is often used to mean the same thing. What differs is the stage: an early offer is a price range, often from several buyers, while a later one comes from a single buyer and asks for exclusivity. US deals call the early version an IOI and keep "LOI" for the later one. An MOU, heads of agreement or term sheet usually sits at the later stage. The name matters less than which clauses bind.
The buyer starts full due diligence, usually on an exclusive basis, and the lawyers draft the sale agreement. If due diligence goes well and the conditions are met, you sign the sale agreement and then complete.
Usually yes, because the price is normally non-binding. AUB Group's buyer walked after about eight weeks of exclusivity. A short list of conditions and a firm exclusivity end date limit the damage.
There's no public standard for private Australian deals. Listed-company examples run about five to eight weeks. Ask for a fixed end date and no automatic extension.