Letter of Intent Template for Acquiring an Addiction Treatment Center

Parties and Transaction Overview

Identifies the buyer entity, seller entity, and the specific assets or equity being acquired. For addiction treatment centers, clarity here matters because the transaction structure — asset purchase vs. stock purchase — determines whether pre-closing billing liabilities and state licenses transfer to the buyer.

💡 Sellers of addiction treatment centers often prefer stock sales to preserve license continuity and avoid triggering payor contract re-credentialing. Buyers typically prefer asset purchases to exclude pre-closing billing liabilities, which are a significant risk given CMS and commercial insurer audit exposure. Negotiate this point early — it affects deal structure, tax treatment, and due diligence scope substantially.

Purchase Price and Valuation Basis

States the proposed total enterprise value, the methodology used to arrive at it, and how the price is expressed relative to the facility's financial performance. Addiction treatment centers in the lower middle market typically trade at 4x–7x EBITDA depending on payor mix quality, accreditation status, and census stability.

💡 Sellers who rely heavily on Medicaid will face downward pressure on multiples — buyers will underwrite commercial insurance revenue more favorably. If EBITDA includes significant founder compensation normalization or one-time expenses, get written agreement on the add-back methodology before signing. A price subject to due diligence adjustment is standard, but define the floor and adjustment triggers in the LOI to avoid renegotiation leverage later.

Transaction Structure and Financing

Outlines how the deal will be funded — typically a combination of SBA 7(a) debt, buyer equity, and seller financing — and specifies whether the transaction is an asset or equity purchase. SBA eligibility makes addiction treatment centers accessible to owner-operator buyers with 10–20% equity injection.

💡 SBA lenders will require the seller to stay engaged post-close (typically 90 days) and may limit the seller note to 10–15% of the purchase price on standby for 24 months. Alert the seller early if SBA financing is planned — it adds 60–90 days to the timeline and requires additional documentation including 3 years of business tax returns and a personal financial statement. If the seller note is tied to a non-compete, clarify this in the LOI.

Earnout Provisions

Defines any portion of the purchase price that is contingent on post-closing performance, typically tied to census levels, net patient revenue, or EBITDA. Earnouts are common in addiction treatment acquisitions because census volatility and payor contract uncertainty make buyers hesitant to pay full price upfront.

💡 Sellers should push for earnout metrics they can influence post-closing, particularly if they are staying on in a clinical or advisory role. Avoid tying earnouts solely to EBITDA, which buyers can manipulate through expense allocation. Census-based and gross revenue earnouts are more transparent. Define what constitutes 'census' — average daily census, average monthly admissions, or billable days — before signing.

Deposit and Good Faith Escrow

Specifies any deposit or earnest money paid by the buyer at LOI execution or upon entering exclusivity, demonstrating commitment and providing the seller compensation if the buyer walks away without cause.

💡 Deposits in behavioral health deals are typically 1–3% of the purchase price. Given the complexity of addiction treatment transactions — licensing, accreditation, and payor credentialing all take time — sellers are right to require a meaningful deposit before granting exclusivity. Buyers should negotiate a full refund trigger if due diligence uncovers undisclosed regulatory sanctions, billing audit findings, or licensing deficiencies.

Due Diligence Period and Access

Establishes the timeline and scope of buyer's due diligence investigation, including access to financial records, licensing documents, payor contracts, staff credentials, and facility compliance history. Addiction treatment centers require broader due diligence than most small businesses given the regulatory complexity.

💡 Sixty days is a realistic minimum for an addiction treatment center given the depth of regulatory review required. Buyers should engage a healthcare regulatory attorney to review licensing and billing compliance and a behavioral health-experienced accountant to normalize EBITDA and validate payor mix. Request the RAC audit history and any state survey findings upfront — these are frequently the first deal-killers discovered late in the process.

Exclusivity Period

Grants the buyer an exclusive period during which the seller cannot solicit or entertain competing offers, enabling the buyer to invest in due diligence and financing with confidence.

💡 Sellers should resist granting open-ended exclusivity without milestone commitments from the buyer — for example, delivery of an SBA lender term sheet within 30 days or a written due diligence findings report within 45 days. Buyers should negotiate a 15-day extension right if SBA processing delays are outside their control. In competitive processes, sellers may seek a shorter 45-day exclusivity window, which is feasible only if the data room is fully prepared.

Regulatory and Licensing Contingencies

Addresses the conditions precedent related to state licensure transfer, accreditation continuity, and payor contract assignment — the three most deal-sensitive regulatory requirements in an addiction treatment center acquisition.

💡 This section is non-negotiable from a buyer's perspective. Accreditation lapse is a deal-killer because it triggers payor contract termination and may require the facility to pause admissions. Engage a behavioral health regulatory consultant immediately upon LOI execution to assess licensure transferability — it varies dramatically by state. Some states require full re-licensure under new ownership, adding 60–120 days to the timeline.

Non-Compete and Transition Agreement

Establishes the seller's commitment not to open or operate a competing addiction treatment facility in the geographic area post-closing, and defines the seller's transition support obligations to protect census and referral relationships.

💡 Addiction treatment centers are heavily relationship-driven — referral pipelines from hospitals, courts, and EAPs are often the most valuable intangible assets. Buyers should structure the non-compete to cover the Facility's actual referral geography, not just a standard radius. Sellers over 60 who are genuinely retiring often accept longer non-competes in exchange for higher seller note interest rates or shorter transition obligations.

Representations and Warranties Preview

Signals the key representations that Seller will be required to make in the definitive purchase agreement, covering regulatory compliance, billing accuracy, staff credentials, and financial integrity — all areas of elevated risk in behavioral health acquisitions.

💡 Sellers should conduct a pre-LOI internal compliance review so these reps can be made with confidence. Billing fraud representations are the highest-risk area — undisclosed Medicaid or Medicare billing irregularities can expose sellers to post-closing indemnification claims years after closing. Buyers should insist on a compliance escrow holdback of 5–10% of the purchase price held for 18–24 months to cover indemnification claims.

Confidentiality and Non-Disclosure

Confirms that both parties are bound by mutual confidentiality obligations, protecting patient information, payor contract terms, staff data, and financial information from disclosure to third parties.

💡 HIPAA creates a layer of confidentiality complexity beyond the standard NDA. Buyers cannot access identifiable patient records during due diligence — all clinical data must be de-identified or aggregated. Work with a healthcare attorney to structure a HIPAA-compliant data use agreement before clinical due diligence begins to avoid violations that could expose both parties.

Binding and Non-Binding Provisions

Clarifies which sections of the LOI are legally binding on both parties and which are expressions of intent subject to definitive agreement, a critical distinction in behavioral health deals where the path to close involves multiple regulatory milestones.

💡 Making confidentiality and exclusivity binding is standard and protects both parties. Some buyers attempt to make the purchase price binding at LOI stage — resist this as a seller unless the due diligence scope is tightly defined. Buyers should never agree to binding price terms without completing at least a high-level review of billing compliance and licensing status first.