Letter of Intent Template for Acquiring a Licensed Daycare or Childcare Center

1. Identification of Parties and Business

Clearly identify the buyer entity, the seller entity, and the specific licensed childcare business being acquired. Include the facility name, address, state license number, and licensed capacity. This anchors the LOI to a specific licensed operation and avoids ambiguity if the seller operates multiple sites.

💡 Always reference the specific state license number in the LOI. If the seller operates multiple sites under a single license, clarify exactly which facility is being acquired and whether any shared license will need to be split or reissued. This becomes critical when structuring licensing contingencies later in the document.

2. Purchase Price and Valuation Basis

State the proposed purchase price, the valuation methodology used to arrive at it, and whether the price is for assets only or includes real property. Childcare centers typically trade at 3x–5.5x EBITDA or 0.6x–1.2x annual revenue depending on enrollment utilization, payer mix, and facility ownership. Clarify whether the price assumes a trailing twelve-month EBITDA figure that will be verified during due diligence.

💡 Sellers who rely heavily on government subsidy revenue (CCDF, Head Start) may have volatile year-over-year earnings. Push for a trailing twelve-month average rather than a single-year figure, and include a price adjustment mechanism tied to verified EBITDA during due diligence. If the seller owns the real estate, negotiate the property purchase or lease terms as a separate line item to keep the business valuation and real estate valuation distinct for SBA underwriting purposes.

3. Deal Structure and Financing

Specify whether the transaction is structured as an asset purchase or stock purchase, identify the financing sources, and outline any seller note or earnout component. Asset purchases are strongly preferred in childcare acquisitions to avoid inheriting undisclosed regulatory liabilities. SBA 7(a) financing is the most common structure for deals in the $1M–$5M range.

💡 SBA lenders will require the seller note to be on standby for the first 24 months, which sellers frequently resist. Address this early so it does not become a surprise at commitment. For deals with meaningful subsidy revenue, SBA underwriters may discount government-dependent revenue — be prepared to demonstrate that subsidy contracts are transferable and have multi-year history. If the seller is financing the full transaction, negotiate a 5–7 year term with a personal guarantee and a first lien on business assets.

4. Assets Included and Excluded

Enumerate the assets being acquired, including tangible property, curriculum materials, intellectual property, client lists (enrollment records), employee agreements, and vendor contracts. Explicitly list any assets being excluded, such as the seller's personal vehicle, personal real estate, or assets used across multiple facilities the seller is retaining.

💡 The waitlist is one of the most valuable intangible assets in a childcare acquisition — make sure it is explicitly included. Also confirm that curriculum materials are owned by the seller and not licensed from a franchisor or third-party provider that would require a separate assignment. If the seller is a NAEYC-accredited facility, confirm whether accreditation transfers or must be reapplied for under new ownership.

5. Licensing and Regulatory Contingency

This is the most critical section unique to childcare acquisitions. The LOI must condition closing on the buyer's ability to obtain a new childcare license or have the existing license assigned to the buyer's entity by the applicable state agency. It should also address the director-of-record requirement, since most states require a credentialed director to be named on the license.

💡 Licensing timelines vary dramatically by state — some states approve license assignments in 30 days while others require full reapplication and a new inspection, which can take 90–120 days. Build your closing timeline around the realistic licensing timeline for your state. If the seller is the director of record, negotiate a transition employment agreement where the seller remains as director of record for 60–90 days post-close while the buyer's designated director completes their credentialing. Never agree to close before licensing continuity is confirmed.

6. Government Subsidy and Contract Transferability

Addresses the transferability of CCDF childcare subsidy vouchers, Head Start or Early Head Start contracts, Pre-K program agreements, and any state quality rating system (QRIS) designations. These revenue streams can represent 20–60% of total revenue at many centers and are not automatically assignable to a new owner.

💡 Do not assume subsidy contracts transfer automatically. CCDF agreements are administered at the state or county level and policies vary widely. Some programs require the new owner to reapply as a new provider, which may result in a gap in reimbursements during the application period. Model a scenario where subsidy revenue is interrupted for 60–90 days post-close and ensure the business can cash-flow at that reduced revenue level. If it cannot, the earnout or seller note structure should reflect that risk.

7. Enrollment Retention Earnout

Childcare businesses are valued largely on enrollment. An earnout tied to enrollment or revenue retention over the 12–24 months post-closing aligns seller incentives with a smooth transition and protects the buyer if enrolled families depart due to the ownership change.

💡 Sellers will push for enrollment thresholds below 85% — 75–80% is a common compromise. Buyers should resist any earnout threshold below 80% because it allows significant revenue erosion before the earnout is affected. Also negotiate whether the earnout metric is enrollment headcount or tuition revenue — revenue is preferable because it captures tuition rate changes. Include a provision that the buyer cannot unilaterally raise tuition rates or change program structures in a way that artificially inflates or deflates the earnout metric.

8. Transition and Seller Cooperation

Specifies the seller's post-closing obligations including staff introductions, family communication, licensing transitions, subsidy program onboarding, and operational knowledge transfer. Given the relationship-driven nature of childcare, a structured transition is essential to enrollment retention.

💡 Sellers who are burned out may resist long transition commitments. A paid consulting arrangement at $3,000–$6,000 per month is often more palatable than an undefined transition obligation. Tie a portion of the seller note payment schedule to completion of specific transition milestones, such as completion of licensing transfer and introduction to all enrolled families, to maintain seller engagement through the critical first 90 days.

9. Real Property — Lease or Purchase

Addresses whether the facility real estate is being purchased, or whether the buyer will take assignment of an existing lease or negotiate a new lease with the landlord. Zoning and Certificate of Occupancy for childcare use is not transferable through a typical lease assignment and must be confirmed independently.

💡 Zoning approval for childcare use is a separate municipal process from lease assignment and can take 30–60 days in some jurisdictions. Confirm with the local zoning authority early in due diligence that childcare use will be permitted for the buyer's entity before signing a lease or purchasing the property. If the building requires ADA accessibility improvements or facility upgrades to maintain licensure under the new owner, negotiate a seller credit or price reduction to cover those capital expenditures at closing.

10. Due Diligence Period and Access

Defines the length of the due diligence period, the categories of information to be provided by the seller, and the buyer's rights to inspect the facility, interview staff, and review licensing records.

💡 45 days is the minimum for a thorough childcare due diligence. SBA lenders typically need 30–45 days just for underwriting, so plan for a parallel process. Request licensing inspection reports going back five years, not just three — licensing violations have long tails in this industry and historical patterns matter. Be cautious about interviewing staff or communicating directly with enrolled families during due diligence without the seller's explicit consent, as premature disclosure can trigger staff departures and enrollment cancellations.

11. Non-Compete and Non-Solicitation

Restricts the seller from opening or operating a competing childcare business within a defined geographic radius and time period, and from soliciting employees or enrolled families post-closing.

💡 Courts scrutinize non-competes in childcare because the seller may be a credentialed educator whose livelihood depends on working in the field. A four-year non-compete is standard in business acquisitions of this size but sellers may push for a shorter duration or carve-outs for working as an employee at a different center. Distinguish between operating a competing business (which should be prohibited) and working as an employee at an unrelated center (which is harder to enforce). The fifteen-mile radius is typical for suburban and rural markets — reduce to five to seven miles in dense urban areas.

12. Exclusivity and No-Shop

Prevents the seller from soliciting, entertaining, or accepting competing offers during the due diligence period in exchange for the buyer's time and resource investment.

💡 60 days of exclusivity is reasonable for a childcare acquisition given the complexity of licensing contingencies and SBA underwriting timelines. Sellers represented by brokers may push back on exclusivity periods longer than 45 days. If you need more time, offer a modest exclusivity extension fee of $5,000–$10,000 refundable against the purchase price at closing to compensate the seller for the market exposure they are forgoing.

13. Confidentiality

Protects the seller's business information, employee details, enrollment data, and financial records disclosed during due diligence from being shared with third parties or used for any purpose other than evaluating the acquisition.

💡 Enrollment records and family contact data are particularly sensitive in childcare and may be subject to state-specific privacy protections beyond general confidentiality obligations. Include explicit language that enrollment data shall not be used for any marketing or solicitation purpose if the transaction does not close. If you have previously signed a standalone NDA with the seller or broker, confirm that this LOI confidentiality provision is consistent with and supplements rather than replaces that agreement.

14. Conditions to Closing

Summarizes all material conditions that must be satisfied before the buyer is obligated to close, creating a clear checklist for the path from signed LOI to definitive agreement to closing.

💡 The 'satisfactory to Buyer in its reasonable discretion' language in condition (i) is a buyer-friendly provision that sellers will attempt to narrow to 'material adverse findings only.' Negotiate for the broader standard as it gives you the ability to exit the deal if due diligence reveals operational or cultural red flags that do not rise to the level of a material financial misrepresentation. The material adverse change clause in condition (vi) is particularly important — a single licensing violation or significant enrollment drop between LOI and closing should allow you to renegotiate or exit.