Software companies
Can you license data after signing an LOI?
By SourceX Editorial · Reviewed by Noah Loul ·
Short answer
You can license data after signing an LOI only with care, and usually only with the acquirer's written consent. Most LOI terms are non-binding, but exclusivity and confidentiality usually bind, and the purchase agreement's interim covenants typically restrict IP licenses outside the ordinary course. Disclose the opportunity to deal counsel, then ask the acquirer before signing.
Key takeaways
- Exclusivity and confidentiality are usually the binding parts of an LOI; read both for language that reaches asset sales or licenses.
- Interim operating covenants in the purchase agreement usually restrict IP licenses outside the ordinary course without buyer consent.
- A first data license is rarely ordinary course for a software company, so assume consent is needed.
- Any license, signed or in negotiation, belongs in the data room and the disclosure schedules.
- Deferring the license until after closing is a legitimate outcome, not a lost opportunity.
Can you license data after signing an LOI?#
You can license data after signing an LOI, but rarely on your own say-so. The letter of intent itself is mostly non-binding, yet it usually contains binding exclusivity and confidentiality terms, and the definitive agreement that follows will restrict how you run the business until closing.
A data license touches what the acquirer is paying for: your IP, your customer relationships and your records. Signing one quietly between LOI and close can breach a covenant, reopen the price discussion or surface as a surprise in diligence. The safe routes are disclosure and written consent, or waiting until after closing.
This is general information, not legal advice. Your LOI and purchase agreement control, and deal counsel should review any license before you sign it.
Which deal terms affect a data license?#
Deal terms that affect a data license appear at two stages: a few binding clauses in the LOI, and a much longer set of covenants and representations in the definitive agreement. Both matter, because counsel will draft the second with the first in mind.
| Term | Usually binding when? | How it affects a data license |
|---|---|---|
| Exclusivity or no-shop | At LOI signing | Mostly about selling the company, but broad drafting can reach asset sales or IP licenses |
| Confidentiality | At LOI signing, or under an earlier NDA | Limits what you can say about the deal to a data buyer or platform |
| Conduct of business before closing | In the definitive agreement, sometimes previewed in the LOI | Typically requires consent for IP licenses or material contracts outside the ordinary course |
| IP representations and warranties | In the definitive agreement | You will represent which IP you have licensed, so a new license must be disclosed |
| Material contracts schedule | In the disclosure schedules | A data license is likely to be listed |
| Purchase price mechanics | In the definitive agreement | Decide who benefits from license payments received before closing |
Is a data license ordinary course of business?#
A first data license is usually not ordinary course of business for a software company. Ordinary course generally means consistent with past practice, and selling subscriptions is past practice; licensing operational records to an AI developer typically is not, especially the first time.
Interim covenants often list specific actions that need consent regardless, such as granting IP licenses other than non-exclusive licenses to customers, entering material contracts or changing data practices. A data license can trigger several of those at once.
The acquirer also has a commercial view. It may plan its own use of the records, worry about exclusivity granted to someone else or want to understand customer reaction before it owns the company. Those concerns are easier to resolve before signing than after.
How to raise a data license with the acquirer#
Raising a data license with the acquirer works best as a short, early disclosure with a clear description of what would and would not be included. Acquirers react badly to discovering a license late and much better to being asked.
- Tell deal counsel first, before any reply to the data buyer beyond acknowledging interest.
- Check the LOI's confidentiality terms before discussing timing or the pending deal with any data buyer or platform.
- Describe the proposed license on one page: record types, de-identification, exclusivity, term and that ownership stays with the company.
- Put the opportunity, and any signed license, in the data room and the disclosure schedules.
- Ask the acquirer for written consent, consent with conditions, or a decision to defer until after closing.
- Build any conditions, such as non-exclusive terms or assignability, into the license draft.
License terms that make consent easier to give#
License terms make consent easier when they leave the acquirer's options open after closing. Each common acquirer worry has a term that answers it, and offering those terms up front shortens the conversation.
| Acquirer concern | License term that addresses it |
|---|---|
| Value shifting to a third party | Non-exclusive grant with no transfer of ownership |
| Losing control after closing | Assignment to the acquirer allowed without the data buyer's consent |
| Exposure of core IP | Core product source code excluded from scope |
| Customer reaction | De-identified records and a clear customer-facing explanation |
| Open-ended obligations | Defined term, defined deliveries and termination rights |
When deferring is the better choice#
Deferring is the better choice when the license would be the company's first, when the acquirer is a strategic buyer in an adjacent market, or when closing is close enough that the license could wait without losing the data buyer's interest. In those cases, asking for consent can create more friction than the license is worth to either side.
Deferring does not mean dropping the opportunity. Record the inquiry, the record types discussed and the contact in the data room, so the acquirer inherits a documented lead rather than a rumor.
- Defer when the license would be exclusive in any way, because the acquirer will usually want that decision for itself.
- Defer when the records in scope include source code for the core product.
- Ask for consent when the license is non-exclusive, narrow and already well advanced before the LOI.
- Ask for consent when the data buyer's timing cannot wait and the acquirer has signaled interest in data programs.
Illustrative: a founder pauses an inbound offer mid-deal#
Illustrative: a fictional fleet compliance software company signs an LOI with a strategic acquirer. Before the purchase agreement is signed, an AI developer approaches the founder about licensing de-identified support transcripts and Jira history.
The founder acknowledges the inquiry without mentioning the deal and calls deal counsel. Counsel reads the LOI's exclusivity clause, which covers any sale of material assets, and the draft purchase agreement's interim covenants, which require consent for IP licenses outside the ordinary course.
The founder sends the acquirer a one-page description. The acquirer asks to defer until after closing so it can fold the opportunity into its own plans. The founder agrees, records the inquiry in the data room and avoids any breach; after closing, the acquirer decides on the license under its own approvals.
How SourceX approaches companies in the middle of a sale#
SourceX's fit check collects only metadata, such as systems, years of history and record types, and no files are shared. Even so, a company under an LOI should check its confidentiality terms with deal counsel before starting one, and should not describe the pending deal.
In the SourceX five-step transaction, Approval is where the supplier confirms that every required consent is in hand, including an acquirer's where the deal documents call for it. The release authorization in the SourceX Evidence Packet records that consent, so the license is clean for both the acquirer and the data buyer.
Frequently asked questions
Is an LOI legally binding?
Mostly not. Price, structure and key terms in an LOI are usually non-binding, but specific provisions such as exclusivity, confidentiality, expenses and governing law are often expressly binding. Read the LOI's binding-provisions clause to see which apply to you, and ask counsel how they reach asset licenses.
Can we keep talking to a data buyer during exclusivity?
Usually you can acknowledge interest and pause, but check the LOI first. Exclusivity clauses aimed at selling the company rarely bar a conversation about a license, yet some reach discussions about material assets. Never mention the pending deal, which confidentiality terms typically protect.
What if the deal falls through after we deferred a license?
Then you are generally free to pursue the license again once exclusivity ends, subject to confidentiality obligations about the failed deal. Check whether the LOI restricts anything after termination, and note what diligence materials about the records the acquirer received.
Who receives license payments made before closing?
That depends on the purchase price mechanics, such as working capital adjustments and how cash is treated at closing. Deal counsel and your CFO should model it before you sign, so the license does not create an unexpected adjustment.
Does the same apply if the buyer is a private equity firm?
Yes. Financial sponsors use similar exclusivity terms and interim covenants, and many treat data as part of their plan for the company. A sponsor may welcome the opportunity, but it will still expect disclosure and a say in the terms.
Should a license signed before the LOI go into the data room?
Yes. A signed license is a material contract that affects your IP representations, so it belongs in the data room and the disclosure schedules. Include the scope, the permitted use, any exclusivity and the termination and assignment terms.
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