M&A LOI Playbook (Execution Required)

Purpose: convert diligence findings into an LOI that is executable, downside-protected, and aligned to Brainforge’s planner-orchestrator stage gates.

Use this with:

ma-workflow-and-triggers.md
ma-workflow-c-delivery-integration.md
ma-target-screening-contract.md
ma-sign-off-checklist.md
ma-guardrails-and-change-control.md
ma-zero-cash-offer-structure.md
olivo-indicative-terms-fast-track.md (active pilot case artifact)

1) Planner-orchestrator integration

This playbook is the required LOI module for diligence -> loi in the orchestrator workflow.

Mode behavior:

Audit mode: validate LOI readiness gaps; no external terms sent.
Plan mode: produce option set, downside cases, and approval packet.
Execute mode: issue approved LOI, run exclusivity timeline, and manage variance log.

Stage gate policy:

no LOI may be issued without this playbook completed
no stage advancement if critical unknown count is greater than zero

1A) First-principles objective (generalizable)

This playbook is designed to be reusable across tuck-in deals with one core objective:

acquire transferable client-book value that Brainforge can retain and grow inside existing service lines

Decision principles:

price risk up front using objective gates
prioritize integration readiness over deal speed
tie contingent value to outcomes Brainforge can operationally execute
require operating-fit to current direction and available delivery capacity

Pilot application rule:

use the active pilot lane (currently Olivo) as the proving ground, then codify lessons back into this base playbook.

2) Required inputs before LOI drafting

Minimum inputs:

completed screening scorecard and threshold pass
QoE-lite pack (or equivalent financial validation)
concentration table (top 10 clients, top 1 and top 3 shares)
founder dependency map (revenue and relationships tied to founder)
contract assignability scan (change-of-control constraints)
draft Day 1 and Day 100 integration plan
top 10 “deal can die” risk register

Input sufficiency rule:

if any required input is missing, LOI status stays plan and cannot move to execute

3) LOI term architecture (concrete defaults)

For sub- $2 M r e v e n u e t a r g e t s an d s u b -$ 1M book-transfer deals, use these default ranges unless exception is approved.

3.1 Valuation anchor and quality adjustment

anchor multiple (sub-$5M revenue agencies): 3.0x-4.0x TTM EBITDA
base anchor for standard fit: 3.5x
quality adjustment range: -0.50x to +0.25x
hard cap under standard policy: 4.0x (exceptions require CEO + Finance approval)

3.2 Consideration mix defaults

Use seller-choice ladder (same definitions across options):

Option	Certainty profile	Performance note	Earnout	Holdco equity/rollover
A	certainty-biased	55%-65%	25%-35%	0%-10%
B	balanced (default)	45%-55%	35%-45%	5%-15%
C	upside-biased	35%-45%	40%-55%	10%-20%

All options:

tie payouts to collected revenue and retention gates
include explicit payout cap, term, and step-down formula

3.3 Term and measurement defaults

earnout/performance term: 24-36 months standard
fast-track small-book variant: 12-18 months target, 24 months hard stop
measurement cadence: monthly true-up, quarterly reconciliation
reporting source of truth: Brainforge invoicing and collections system

3.4 Retention and growth gate defaults

GRR < 85%: payout pause
GRR 85%-89%: partial payout (default 70%)
GRR >= 90%: full payout eligibility
optional growth kicker on incremental collected revenue above baseline

3.5 Margin and concentration protections

payout ceiling default: max 55% of monthly gross profit on transferred accounts
concentration protection:
- top-1 client > 30% requires additional earnout weighting and stricter payout gates
- top-1 client > 40% requires exception memo and CEO approval

4) LOI non-negotiable term set

Every LOI must include explicit language (or schedules) for:

Purchase economics

methodology (EBITDA or transferred-revenue framework)
option ladder with one selected “preferred” and one fallback
caps, floors, and step-down mechanics

Working capital and cash normalization

peg approach and adjustment method
treatment of deferred revenue, owner add-backs, and non-recurring expenses
explicit authority for dispute resolution and final calculation source

Exclusivity and process

exclusivity period default: 45-60 days
extension rule: only if both parties complete documented diligence milestones
required diligence artifact list with due dates

Legal-risk framing (headline LOI level)

reps/warranties scope summary
indemnity framework concept (cap/basket/survival bands to be finalized in definitive docs)
escrow/holdback concept if needed

Transition and operating model

founder role and time commitment
key-team retention expectations
decision rights during transition period (including hiring/firing and client ownership boundaries)

Integration guardrails

Day 1 plan owner and timeline
Day 100 integration milestones and KPIs
constraints on actions that can impair earnout fairness
required Workflow C cooperation obligations for service-line integration

Workflow C performance alignment

define what portion of contingent consideration is linked to Workflow C outcomes
define objective milestones for:
- operator/GM lane activation
- account handoff completion
- service-line attachment and expansion plan launch
define measurement owner and dispute-resolution path

Closing conditions and walk-away rights

mandatory conditions to close
explicit buyer and seller walk-away triggers

5) Redline positions and fallback hierarchy

Use this hierarchy in negotiation:

Tier 1 (must keep): downside protection terms
- payout gates, concentration protections, assignability protections, reporting authority
Tier 2 (tradeable with compensation): timing and tranche shape
- term length, payout cadence, equity percent
Tier 3 (most flexible): presentation preferences
- option naming, sequencing of deliverables, communication language

Never concede Tier 1 protections without written exception approval.

Workflow C rule:

for tuck-in deals intended to extend existing service lines, do not concede Workflow C cooperation obligations without executive exception approval.

6) Approval packet format (required output)

Before sending LOI externally, produce a single packet with:

LOI one-page summary

selected option
valuation logic
key protection terms

Option comparison table

Option A / B / C payout outcomes (downside/base/upside)

Sensitivity table

retention and growth sensitivities
concentration stress test

Top 10 risk register

owner, early signal, mitigation, escalation trigger

Decision request

approver signatures and timestamp

Required approvers:

Deal Lead
Finance Lead
Legal/Operations Lead
Delivery/Integration Lead
CEO or delegated final approver

7) Sign/no-sign rubric (hard gate)

Sign only if all are true:

downside case still meets minimum return requirements
no critical unknowns in diligence essentials
founder and integration incentives are not in conflict
close timeline is realistic under exclusivity terms
internal owner capacity is confirmed for close and first 100 days

If any fail:

do not issue LOI
revise terms or re-open diligence
re-approve through packet flow

8) Post-LOI control loop

After LOI signature:

maintain a variance log (LOI term vs current negotiated term)
classify each variance: economics, legal risk, integration feasibility, timeline
escalate any material variance within 24 hours to approvers
require re-approval for any variance that weakens downside protection

Goal:

LOI terms should survive to definitive agreements unless evidence-based diligence findings require change.

9) Active application lane: Olivo pilot deal

This section converts the general playbook into concrete actions for the current Olivo pilot evaluation.

9.1 Deal profile (current)

target type: founder-led product analytics book transfer
likely size: sub-$1M annual revenue
growth context: limited outbound; referral/channel concentration risk
stated seller intent: open to transition and potential buyout under the right structure

9.2 Recommended LOI path for Olivo pilot

Use fast-track, seller-choice ladder with balanced option as default:

preferred option (B, balanced):
- performance note: 45%-55%
- earnout: 35%-45%
- holdco equity: 5%-10% optional
- term: 12-18 months target, 24 months hard stop
- base share reference: 22%-28% of retained transferred revenue
- growth kicker reference: 10%-15% on incremental transferred-account revenue
fallback option (A, certainty-biased):
- larger performance note and lower upside kicker
- useful if seller prefers payout certainty over second-bite upside

9.3 Olivo-pilot LOI must-address items

account transfer perimeter and schedule (named account list in schedule)
contract assignment/consent plan by account
role charter:
- full-time Brainforge leadership role OR transition-only scope
- no ambiguous “employee plus separate external book” operating model without explicit conflict rules
data source authority for payout calculations
client communication plan for transfer and continuity
Workflow C milestones tied to contingent value:
- GM lane activation in product analytics service line
- account handoff completion for Tier A/B accounts
- delivery-structure mapping and expansion motion launch

9.4 Olivo pre-LOI checklist (execution now)

Complete before any LOI send:

Gather and validate:

trailing 12-month account-level revenue by month
account-level churn and retention
top-client concentration and dependency map
contract assignability flags

Build economics:

Option A/B/C payout model
downside/base/upside scenarios
concentration stress case

Build transition package:

founder role and authority matrix
key account handoff plan
Day 1 and Day 100 milestones

Approvals:

issue packet to required approvers
capture sign-off record in deal room

10) Exception handling

Any exception to term ranges, payout protections, or guardrails requires:

written exception rationale
quantified upside/downside impact
mitigation owner and timeline
explicit approval from CEO + Finance Lead + Legal/Operations Lead

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