Letter of Intent Template for Acquiring an Architecture Firm

Parties and Transaction Overview

Identifies the buyer entity, seller entity, and the specific assets or equity interests being acquired. For architecture firms, this section must clarify whether the transaction is structured as an asset purchase or stock purchase, as this directly affects how architectural licenses, contracts, and professional liability history transfer.

💡 Sellers often prefer a stock purchase to preserve client contract continuity and avoid triggering assignment clauses in government or institutional contracts. Buyers typically prefer an asset purchase to avoid inheriting unknown E&O liability. In architecture firm deals, this tension is common — negotiate which legacy contracts require novation and which transfer automatically under state law before committing to a structure.

Purchase Price and Valuation Basis

States the proposed total consideration, the methodology used to arrive at it, and how the price is allocated between tangible and intangible assets. Architecture firms in the lower middle market typically trade at 2.5x–4.5x EBITDA, with the specific multiple driven by backlog strength, client diversification, and whether a licensed architect beyond the founder exists.

💡 Sellers should push back on open-ended price adjustment language and negotiate a defined due diligence adjustment cap — typically no more than 10–15% of total consideration. Buyers should ensure that the EBITDA calculation adds back only legitimate one-time items and that the principal's compensation is normalized to market-rate replacement cost, not eliminated entirely, since a senior architect will need to be hired or retained post-close.

Earnout Structure and Metrics

Defines the contingent payment tied to post-close performance, which is nearly universal in architecture firm acquisitions due to key-man risk and client relationship uncertainty. Earnouts in architecture deals are typically tied to revenue retention from existing clients, backlog conversion, or EBITDA over a 12–24 month period following close.

💡 Sellers should negotiate for earnout metrics tied to factors within their control — client introductions, transition support, and referrals — rather than metrics affected by Buyer's operational decisions post-close. Sellers should also negotiate anti-sandbagging provisions preventing Buyer from intentionally underserving earnout-period clients to reduce payments. Buyers should include a carve-out that excludes revenue decline caused by macroeconomic downturns, client bankruptcy, or government contract non-renewal from earnout calculations.

Licensure Continuity and Principal Obligations

Addresses one of the most critical and architecture-specific issues in any deal: ensuring a licensed architect is in place post-close to maintain the firm's Certificate of Authorization in each state of operation. This section also defines the selling principal's transition role and any consulting or employment obligations.

💡 This is often the most heavily negotiated section. Sellers nearing retirement resist long consulting obligations; buyers fear being left without licensed coverage. Compromise structures include a 12-month full-time employment period followed by a 12-month part-time consulting retainer. Both parties should confirm with their respective legal counsel which states require the Certificate of Authorization to be reissued versus amended upon a change of ownership.

Project Backlog and Working Capital

Defines how the existing signed project backlog is valued, how work-in-progress is handled at closing, and what working capital target is established for the business at the time of transfer. Architecture firms often have significant unbilled receivables and deferred revenue tied to project phases.

💡 Buyers should require project-level backlog detail including client name, project phase, contract value, and percentage complete. Sellers should push to exclude contingent or unsigned proposals from any backlog representations. Both parties should agree on how percentage-of-completion revenue recognition affects the working capital peg and whether unbilled receivables are included in or excluded from the target calculation.

Due Diligence Period and Access

Specifies the length of the due diligence period, what materials the seller must provide, and the process for buyer access to staff, clients, and project files. Architecture firm due diligence requires specialized review of licensure records, E&O insurance history, and project contract terms.

💡 Sellers should limit buyer access to clients and staff until late in the due diligence process to avoid premature disclosure. Buyers should insist on direct interviews with at least the top two or three project managers and review of each principal's licensure renewal history. For firms with government contracts, buyers should confirm early whether any contracts include change-of-control clauses requiring agency consent.

Exclusivity and No-Shop

Grants the buyer an exclusive negotiating period during which the seller agrees not to solicit or entertain competing offers. This is typically the only binding provision in an LOI alongside confidentiality and expense obligations.

💡 Sellers should resist exclusivity periods longer than 45–60 days unless the buyer has demonstrated serious intent through a significant earnest money deposit or proof of financing. Buyers should negotiate the right to extend exclusivity by 15–30 days if due diligence uncovers issues requiring additional information, provided they notify the seller in writing before the original expiration date.

Confidentiality

Requires both parties to protect the confidentiality of deal terms, financial information, and client data exchanged during the transaction process. For architecture firms, this is especially important given the sensitivity of client project details, fee structures, and employee compensation.

💡 Sellers should ensure the LOI confidentiality provision covers disclosure to employees and clients, not just third-party competitors. If the buyer is a competing architecture firm, sellers should negotiate specific restrictions on how employee compensation and client fee data may be used if the deal falls through.

Conditions to Closing

Lists the key conditions that must be satisfied before the transaction can close, including financing, licensure confirmation, third-party consents, and satisfactory due diligence completion.

💡 Sellers should negotiate a definition of 'material adverse change' that excludes normal project completions, seasonal revenue variation, and industry-wide economic events. Buyers using SBA financing should alert the seller early that SBA approval adds 60–90 days to the timeline and may require the seller to carry a standby note representing 10% or more of the purchase price.

Expense and Break-Up Provisions

Addresses which party bears deal costs if the transaction does not close, and whether any break-up fee applies if a party terminates the LOI in bad faith.

💡 Break-up fees in lower middle market architecture deals are uncommon but can be appropriate when the seller has turned away competing buyers in reliance on the LOI. Sellers should resist expense reimbursement obligations tied to due diligence costs unless a meaningful earnest money deposit is not in place, as buyers can inflate claimed expenses.