# Letter of intent > A largely non-binding document setting out the main terms of a proposed deal, such as price and structure, before a definitive agreement is negotiated. Source: https://www.quantisnow.com/glossary/letter-of-intent Topic: Glossary / Mergers and acquisitions Also known as: LOI, non-binding letter of intent, term sheet, memorandum of understanding Last updated: 2026-10-27 A letter of intent (LOI) is a preliminary document in which parties to a proposed transaction, such as an acquisition, merger or licensing deal, outline the key terms they expect to agree on, including price, structure and timing. Its economic terms are usually non-binding; the deal is not done until a definitive agreement is signed. ## How it works An LOI typically covers the proposed price or valuation, form of consideration, major conditions and a target timeline. A few provisions are usually binding: confidentiality, an exclusivity or no-shop period during which the seller agrees not to negotiate with others, and expense terms. The buyer then runs due diligence and the lawyers negotiate a [merger agreement](https://www.quantisnow.com/glossary/merger-agreement). Public companies are not generally required to disclose a non-binding LOI, because an 8-K Item 1.01 filing is triggered by a material definitive agreement. Many small caps announce LOIs by press release anyway, particularly for [reverse mergers](https://www.quantisnow.com/glossary/reverse-merger), SPAC targets and acquisitions they want investors to know about early. ## Why it matters for traders An LOI headline can move a small-cap stock sharply, but the conversion rate from LOI to closed deal is far from guaranteed. Watch for the language "non-binding," the length of exclusivity, and whether financing is in place. Repeated LOI announcements that never become definitive agreements are a red flag. The meaningful catalyst is usually the definitive agreement, filed as an exhibit to an 8-K. ## Example Hypothetical Northwind Energy (NWEN), a $60 million market cap company, announces a non-binding LOI to acquire a private solar developer for $40 million in stock, with 60 days of exclusivity. NWEN rises 25% on the news. When exclusivity lapses without a definitive agreement, the company says talks have ended and the stock gives back the entire gain. ## FAQ ### Is a letter of intent legally binding? Mostly not. The price and deal terms are typically non-binding, while confidentiality and exclusivity clauses usually are. ### What comes after a letter of intent? Due diligence and negotiation of a definitive agreement. Only a signed definitive agreement commits both sides to the deal, subject to its closing conditions. ## Related terms - [Merger agreement](https://www.quantisnow.com/glossary/merger-agreement.md): The binding contract between an acquirer and a target that sets the deal price, structure, closing conditions and termination rights of an acquisition. - [8-K Item 1.01: Entry into a Material Definitive Agreement](https://www.quantisnow.com/glossary/8-k-item-1-01.md): The 8-K item a company uses to disclose that it signed a material agreement outside the ordinary course of business, such as a merger or credit deal. - [Reverse merger](https://www.quantisnow.com/glossary/reverse-merger.md): A transaction in which a private company becomes public by merging into an existing public company, bypassing a traditional IPO. - [De-SPAC](https://www.quantisnow.com/glossary/de-spac.md): The merger in which a SPAC combines with a private operating company, turning that company into a publicly traded business. - [Press release](https://www.quantisnow.com/glossary/press-release.md): An official company announcement distributed through a newswire, used to disclose earnings, deals, trial results and other news to the public. ## On Quantisnow - [Mergers and acquisitions news](https://www.quantisnow.com/guides/mergers-and-acquisitions-news) - [Mergers and acquisitions](https://www.quantisnow.com/categories/mergers-acquisitions) - [Live feed: Press Releases](https://www.quantisnow.com/news/prs)