A founder I talked to last month signed an LOI on a software company sale. The headline number was nine figures. The deal structure looked tight on the first read — cash at closing, a one-year escrow, an eighteen-month survival period, and a reverse termination fee in case the buyer walked. The founder’s banker said it was a market deal.
Two months later, the buyer’s first markup of the merger agreement landed in the inbox. The escrow was now sized to fifteen percent of the purchase price. The earnout had grown a tail that went out three years. The reverse termination fee had a financing-out attached to it that made it look more decorative than real. Each item on its own was within some defensible range. The combination shaved nearly twenty percent off the headline number on a present-value basis.
None of this was the buyer being aggressive. The buyer was being market. The market had moved, and the LOI was drafted to a version of the market that no longer existed.
What the 2026 SRS Acquiom study actually changed
SRS Acquiom is a transfer-agent and post-closing-services business that processes a large fraction of private-target merger consideration. It publishes a deal-terms study every year that aggregates terms from the deals it touches — this year, the study covers more than 2,300 private-target acquisitions, around $569 billion in aggregate value, closing between 2020 and 2025. The 2026 edition came out earlier this year. Founders approaching an LOI should know three of its findings cold, because the buyer-side counsel across the table does. The published study is at srsacquiom.com and the deal bar’s commentary, including the Fasken takeaways and the DealLawyers.com summary, is converging around the same three points.
The first finding is that private M&A escrow size in 2026 has crept up. Across the 2025 sample, eighty-eight percent of private-target deals involved some form of escrow or hold-back. For deals without rep-and-warranty insurance, the average escrow size was about twelve percent of transaction value and the median was ten percent. For deals with rep-and-warranty insurance, the average dropped to roughly five percent and the median to under three percent. The size of escrows ticked up across almost all deal categories from 2024 to 2025. The escrow size is not a fixed market convention; it is a moving target that has been migrating upward, and the 2026 RWI exclusion list has been shrinking in parallel, which means the policy is not the safety valve it used to be. A founder who signs an LOI without a specified escrow percentage is implicitly accepting the market at signing — which now means a larger escrow than the comparable deal three years ago.
The second finding is that earnouts have come back, and they have come back longer. The study reports earnouts in roughly twenty-four percent of deals, well above the historic norm of about twenty percent, with the median earnout potential climbing from thirty-one percent of the closing payment in the prior study to about thirty-four percent. The reappearance is not a market quirk. Buyers and sellers are not agreeing on valuations the way they were in 2021, and the earnout is the contingent-consideration bridge that closes the gap. The bridge is now wider and longer than founders are pricing into the headline number.
The third finding is that post-closing seller exposure has grown. Survival periods are lengthening and the no-survival or “walk-away” structure — the deal in which the seller is not on the hook for indemnification claims after closing — has dropped sharply, from eighteen percent of non-RWI deals in 2024 to eleven percent in 2025. At the same time, deductible baskets are giving ground to first-dollar baskets, with deductibles falling to thirty-two percent of deals and first-dollar baskets rising to forty percent. Each of those shifts moves money out of the seller’s pocket on the back end. The Fasken and DealLawyers.com summaries flag the same direction of travel.
Why a founder needs to internalize this at the LOI, not at the merger agreement
The LOI does not legally bind the parties on most economic terms. It does, in practice, lock in a starting point. The founder’s leverage is highest in the days before signing the LOI, because the buyer has competing process options at that moment. Once the LOI is signed, the buyer has an exclusivity period — thirty, forty-five, or sixty days — in which the founder cannot shop the company. Inside the exclusivity window, every escalation by the buyer is met with a calculation by the founder: walk and restart the process, or accept the markup. The founder rarely walks. The founder accepts the markup most of the time, and the markup is the buyer’s working position drifting from the LOI’s stated position toward the buyer’s preferred market position.
The market-drift problem is structural. The 2026 SRS Acquiom numbers tell us what the buyer’s preferred market position is. The founder who signs an LOI with vague or under-specified terms on escrow, earnout, and post-closing exposure is signing an LOI that will drift toward those numbers between signing and closing, and the drift will be characterized as a market correction rather than a negotiation. The fix is to fight the drift at the LOI stage by being specific.
Concretely, that means three moves at the term-sheet stage that founders skip and that they should not.
Three LOI moves that hold the line against the 2026 market
The first move is to name the escrow as a percentage of the purchase price, not as a placeholder for “to be negotiated.” A founder who writes “escrow of eight percent for twelve months” into the LOI is putting a number on the page that the buyer has to argue away from. A founder who writes “customary escrow arrangements” into the LOI is conceding the negotiation in advance. The buyer’s counsel will arrive with twelve percent and a twenty-four-month survival period, and the founder will spend the next six weeks losing the argument from a baseline that was never specified.
The number a founder should anchor at depends on the deal size, the buyer’s risk profile, and whether the deal will carry rep-and-warranty insurance. For RWI deals — which have become the dominant structure in mid-market and above — the escrow should be sized to the retention under the policy, not to the historical pre-RWI norms. The SRS data shows the escrow size for RWI-covered deals is materially smaller than for non-RWI deals. A founder who is paying for an RWI policy should be capturing the escrow-size benefit of having paid for it. The simple merger agreement template structure illustrates where the escrow language fits in the document, and the term-sheet line that drives it is one paragraph.
The second move is to define the earnout’s mechanics before the earnout’s metrics. Founders negotiate earnouts on the headline contingent number — “up to twenty million dollars if we hit the targets” — without specifying the operating covenants the buyer will be subject to during the earnout period, the accounting conventions that determine whether the metrics were hit, or the buyer’s acceleration obligations if the buyer is itself acquired during the earnout. The Delaware case law on these issues has thickened. The earnout-acceleration question on a change of control of the buyer has generated multiple Chancery opinions in recent years. A founder negotiating an earnout in 2026 who does not write specific operating covenants, specific accounting conventions, and a specific acceleration trigger into the term sheet is leaving each of those issues to a markup that will come out in the buyer’s favor.
The third move is to specify what happens if the buyer does not close. The reverse-termination-fee architecture is the founder’s protection against the buyer using the period between signing and closing to find a better deal or change its mind. The architecture has three moving pieces — the size of the fee, the events that trigger payment, and the financing-out language — and each of them is negotiated against a buyer-side template that defaults to making the fee narrow and conditional. A founder who writes a flat reverse-termination-fee number into the LOI without specifying the triggers and without addressing financing conditionality is signing up for a fee that may never become payable.
Where founders consistently lose the gap
The fourth issue, which is less captured by the headline SRS Acquiom numbers but more dispositive of founder economics, is the indemnification basket and cap architecture. Founders read the basket and cap as backstops — the deal is for the headline number, the basket is the trip-wire, the cap is the ceiling. The basket and cap are not backstops. They are the operative number on every indemnification claim that surfaces post-closing. Whether the basket is a tipping or first-dollar basket (claims trip the basket and then the seller pays all claims dollar-one) or a true deductible (claims trip the basket and the seller pays only the amount above the basket) determines whether the first dollars of every claim flow back from the founder’s pocket. The SRS data shows the market has moved against deductibles — they fell from thirty-nine percent of deals to thirty-two percent — with first-dollar baskets rising to forty percent. The basket type belongs in the term sheet, and most founders skip it. The cap architecture — general cap, special indemnity caps, fundamental rep carve-outs, fraud carve-outs — sits inside the same conversation, and the interactions between them are not boilerplate. They have allocational consequences that are larger than the headline escrow number.
The fifth issue is the working capital target. The buyer’s preferred working-capital number is built from a normalized version of the seller’s historical performance, and the buyer’s preferred normalization assumptions move money out of the closing payment in ways founders do not always see at the term-sheet stage. A working-capital target negotiated in the merger agreement after the LOI is signed is a working-capital target negotiated against the buyer’s accounting baseline rather than the seller’s. The founder who pushes the working-capital methodology and target into the LOI — even at the level of “calculated on a basis consistent with the company’s historical accounting practices, applied consistently” — is keeping the founder’s baseline in play. The post on why the working-capital target number matters more than the true-up walks through where the leakage shows up.
What the 2026 LOI checklist looks like
A founder approaching an LOI in 2026 should walk in with five term-sheet positions specified, not five placeholders. The escrow size and duration. The earnout structure, mechanics, and acceleration. The reverse termination fee with stated triggers and limited or no financing-out. The indemnification basket type and cap architecture at a top-line. The working capital methodology and target framework. Each of these is one to three lines in the term sheet. The drafting cost is low. The leverage cost of leaving them out is high, because each placeholder becomes a market-drift fight inside the exclusivity window, and the SRS Acquiom 2026 data tells us the drift is one-directional.
The bigger point about LOIs is that founders treat them like commitments to the headline number and the structure, and the buyer’s deal team treats them like opening positions on every other variable. The founder who treats the LOI the same way as the buyer’s deal team is the founder who closes the deal at the headline number. The founder who treats the LOI as a handshake on a price and a structure is the founder who closes at the headline number minus the drift. Our M&A practice page walks through how the term sheet maps to the definitive document, and the seller-versus-buyer term mapping spells out where the easy wins and the easy losses sit in the standard language.
The 2026 SRS Acquiom study is the buyer’s reference document. It should be the founder’s reference document too. The way the founder uses it is at the term-sheet stage, by anchoring numbers and structures before the buyer’s counsel can substitute the market’s preferred ones.
If you are a founder looking at an LOI and trying to figure out whether the escrow, earnout, and walk-away terms are market or worse than market, feel free to reach out to my firm manager, Magda, at Magda@montague.law, or fill out our contact form. Mention you read this post.
