The process is six gates, not a timeline. Your leverage is gone after the fourth.

What are the six gates?

Preparation, outreach, indications of interest, letters of intent, confirmatory diligence, and documentation. A process is usually described as a timeline because that is what a seller asks about first, but the calendar is the least useful way to hold it. What matters is that each gate narrows the buyer pool, and the seller's position is entirely a function of how many buyers remain on the other side of the one they have just passed.

Gate one is preparation, and it happens before anyone outside the company knows a process exists. Gate two is outreach: the teaser goes to a list, non-disclosure agreements come back, and the book goes out. Gate three is indications of interest, non-binding, with a range and a set of assumptions. Gate four is the letter of intent, which is where price, structure and exclusivity get agreed together. Gate five is confirmatory diligence conducted under exclusivity. Gate six is the purchase agreement and closing.

Only two of those gates are reversible. Before gate four a seller can go back to the field. After it, going back to the field means telling every previous bidder that the deal they lost is available again, which is a signal that prices itself.

What decision does the owner face at each gate?

At gate one, whether the business is presentable and at what number. The current preparation standard is at least thirty-six months of clean, normalized monthly financial statements with a quality of earnings report commissioned early rather than in response to a buyer's findings; the firms that closed successfully were described as having well-prepared financial packages that helped minimize re-trading risk (Capstone Partners, Capital Markets Update, 4 June 2026). The decision is not whether to do this but whether to launch without it, and launching without it moves the entire cost of the gap into gate five, where the seller pays for it.

At gate two, how wide the list goes and who is excluded from it. Competitors and customers are the two categories that carry real confidentiality risk and often the highest prices, and there is no general answer. Buyer composition should inform it: private equity buyers were involved in only 11 percent of lower-middle-market transactions, and lower-middle-market deals are more than 40 percent of all M&A transactions (SRS Acquiom, 2026 M&A Deal Terms Special Report: Lower Middle-Market Deals, published 5 June 2026, drawn from more than 4,400 private-target transactions). A list built for sponsors, at the small end, is a list built for one buyer in nine.

At gate three, which indications to advance. This is the decision most sellers get wrong, because the highest indication is not the same as the best one, and an indication is not an offer. What separates them is the assumption set behind the number, the financing condition, and whether the buyer has closed anything comparable. An indication with no committed financing and a wide range is a request for exclusivity dressed as a price.

At gate four, which letter of intent and on what exclusivity terms. Then at gate five, what to concede when diligence produces a re-trade request, and at gate six, the terms of the agreement itself: the working capital mechanism, the contingent consideration, the escrow, the representations. Each of those is covered separately on this site, because each of them is worth more than the last quarter turn of multiple most sellers spend their negotiating energy on.

Why does leverage peak at the letter of intent?

Because exclusivity is the seller's last transferable asset, and gate four is where it is transferred. Up to that point the seller has competing counterparties and the buyer knows it. After it the seller has one counterparty who knows there are no others, for a period the seller has just agreed to.

That period is getting longer. Seventy-three percent of senior investment bank executives expect the diligence process to become more complex over the next twelve to twenty-four months, one in five report that timelines have already extended over the past two years, and of those, 57 percent say one to three additional months have been added (SRS Acquiom and Mergermarket, published 23 February 2026, surveying 150 senior US investment bank executives, fielded in Q4 2025). Every additional month of exclusivity is an additional month during which the only available response to a re-trade is to accept it or to restart.

The state of the buyer pool makes the same point from the other direction. Sponsor-to-sponsor sales fell 57 percent by value in the second quarter of 2026 to 24.5 billion dollars, with the count down 38 percent to 94, the lowest quarterly mark in at least a decade (PitchBook, Q2 2026 US PE Breakdown, 6 July 2026). The second bidder that used to make a process credible is scarcer than it was, which raises the cost of granting exclusivity and the value of not granting it a day earlier than necessary.

The practical consequence is a short list of things that belong in the letter of intent rather than in the purchase agreement. The exclusivity period and what breaks it. The working capital definition and the policies it is calculated on. The structure of any contingent consideration and the operational covenants attached to it. The financing condition, if any. Each of those is negotiable while alternatives exist and administrative afterwards.

What can be settled before gate one that cannot be recovered after gate four?

Four things. Financial quality, which means the thirty-six months of normalized monthlies and a sell-side quality of earnings that identifies the adjustments a buyer will contest before a buyer contests them. Once diligence has proposed an accrual, a seller is arguing against a finding rather than presenting a position.

Documentation of the operating system, which is the workstream that now sets the calendar. Fifty-one percent of dealmakers call technology diligence the single most burdensome element of the review and 84 percent expect increased cybersecurity scrutiny over the next twelve to twenty-four months (SRS Acquiom and Mergermarket, 23 February 2026). A seller who documents systems, access controls and third-party dependencies before launch removes the workstream most likely to consume exclusivity.

Dependence on the owner, which is the largest single structural discount in a lower-middle-market business and the slowest to fix. It cannot be fixed inside a process. It can only be fixed before one, which is why the thirty-day owner-absence test belongs at gate zero rather than gate one.

And the reserve. A number the owner will not go below, decided with their own balance sheet in front of them and before the first indication arrives, is the only defence against the drift that gate five is designed to produce. A reserve decided after a re-trade request is not a reserve; it is a reaction.

What does the calendar actually look like?

Nobody publishes a median. No regulator, exchange or professional body publishes a launch-to-close duration series for middle-market sell-side processes, and any single figure quoted for it comes from a firm that runs them. What is published is where the additional time is going, which is the diligence extension above, and that is the number worth planning against: your own historical baseline plus one to three months, with the increment landing in technology and cyber workstreams rather than in financial diligence.

The other planning input is that waiting is no longer free. The Federal Open Market Committee held at 3.50 to 3.75 percent on 29 July 2026 by nine votes to three, with all three dissents in favour of a hike, and middle-market dealmakers are openly discussing pressure to transact before rates rise rather than waiting for cuts (FOMC statement, 29 July 2026; ACG and GF Data, Q3 2026 Market Pulse Survey, published 15 July 2026). For eighteen months the cost of delay was zero. It is not zero now.

Two sequencing rules follow. Do not launch a process that will run its confirmatory diligence through the period when the business is at its seasonal weakest, because gate five is where the trailing twelve months gets re-measured. And do not launch before the pack is finished, because the difference between a prepared and an unprepared seller does not show up at gate two when everyone is polite. It shows up at gate five, when the seller has no alternatives and the buyer has a list of findings.