Letter of Intent Template for Buying a Collision Repair Shop

Buyer and Seller Identification

Clearly identify the acquiring entity, the selling entity, and the principals involved. Specify whether the buyer is an individual, an LLC formed for acquisition purposes, or a PE-backed platform. For collision shops, note whether the buyer intends to assume the existing legal entity or form a new operating entity, as this affects DRP agreement continuity discussions with insurers.

💡 If the buyer is a newly formed acquisition entity, sellers may request proof of equity availability or an SBA pre-qualification letter. PE-backed buyers should disclose the platform entity upfront to avoid issues with insurer DRP reassignment, as some carriers require approval of the acquiring entity before consenting to relationship transfers.

Purchase Price and Valuation Basis

State the proposed purchase price, the valuation methodology used, and any adjustments tied to working capital, equipment condition, or normalized EBITDA. Collision shops typically trade at 3.5x–5.5x SDE or EBITDA, with the multiple driven heavily by DRP relationship quality, equipment modernity, and technician tenure. Anchor the price to a specific trailing twelve-month earnings figure.

💡 Sellers with multiple active DRP agreements and OEM certifications (Tesla, BMW, GM) should push for multiples at the higher end of the 4.5x–5.5x range. Buyers should resist anchoring price to a figure before reviewing insurer performance scorecards and cycle time metrics — a shop with deteriorating DRP scores may be overvalued at 4x. Build in a price reduction mechanism if EBITDA is restated by more than 10% during quality of earnings review.

Deal Structure and Consideration

Define whether the transaction is structured as an asset purchase or stock purchase, and detail the consideration components including cash at close, seller financing, SBA loan proceeds, and any equity rollover. Most collision shop acquisitions use asset purchase structures to limit environmental liability assumption, with SBA 7(a) financing covering 80–90% of the purchase price.

💡 Sellers should expect buyers using SBA financing to require a seller note representing 10–15% of the purchase price, as SBA lenders typically require this as evidence of seller confidence. Tie seller note payments to DRP retention milestones — if the shop loses its State Farm or GEICO DRP within 12 months post-close, a partial note reduction provision protects the buyer against revenue risk. PE-backed buyers may offer equity rollover at 10–20% in lieu of a seller note, which can provide sellers with tax deferral and upside participation.

Due Diligence Scope and Timeline

Define the specific due diligence workstreams, timeline, and access requirements. For collision repair shops, due diligence must explicitly cover DRP contract review, Phase I Environmental Site Assessment, equipment appraisal, technician certification verification, and lease review. A 45–60 day due diligence period is standard for shops in the $1M–$5M revenue range.

💡 Sellers should negotiate a hard deadline for buyer information requests to avoid open-ended due diligence that ties up the business. Buyers should push for direct conversations with the shop manager and lead estimator during due diligence — if the owner is the sole point of contact for insurer representatives, this is a key-man risk that must be surfaced before closing. Confirm early whether any DRP agreements require written insurer consent to assign, as some carriers treat an asset sale as a trigger for relationship renegotiation.

Exclusivity and No-Shop Period

Establish the period during which the seller agrees not to solicit or entertain competing offers. A 45–60 day exclusivity window is standard and should be co-terminus with the due diligence period. Sellers with strong DRP relationships and modern equipment may negotiate a shorter exclusivity period or a break-up fee if the buyer terminates without cause.

💡 Sellers of shops with multiple DRP agreements and OEM certifications are in stronger negotiating positions and may request a shorter 30-day exclusivity window. Buyers should resist exclusivity periods shorter than 45 days when a Phase I ESA is required, as environmental assessments alone can take 3–4 weeks. A reverse break-up fee payable to the seller if the buyer walks without cause is increasingly common in competitive collision shop deals.

Contingencies and Conditions to Closing

List the specific conditions that must be satisfied for the transaction to close. Collision repair acquisitions have industry-specific contingencies that generic LOI templates miss — DRP agreement transferability, environmental clearance, SBA loan approval, lease assignment, and key employee retention agreements must all be addressed as explicit conditions precedent.

💡 DRP contingency language is the most negotiated section in collision shop LOIs. Insurers like State Farm and Allstate have their own approval processes for ownership transfers and will not commit on an expedited basis — build in realistic timelines. Sellers should push back on requiring 100% DRP transferability as a hard condition; instead, negotiate a revenue threshold (e.g., 'DRP carriers representing at least 70% of trailing twelve-month insurance revenue confirm relationship continuity'). Environmental contingencies should specify who bears remediation costs and set a cap on remediation expenses above which either party can terminate.

Employee and Key Person Retention

Address the treatment of existing employees, owner transition obligations, and retention arrangements for key technicians and the shop manager. In collision repair, the lead estimator and I-CAR certified body technicians are as critical to business continuity as the DRP agreements themselves — their departure post-closing can trigger insurer performance reviews.

💡 Sellers should negotiate the consulting fee as a non-contingent obligation paid regardless of DRP transfer outcomes. Buyers acquiring from PE platforms or MSOs may find that technician retention is easier due to brand stability, but owner-operator sellers often have personal relationships with technicians that may not transfer. Consider signing bonuses of $5,000–$15,000 for key technicians conditioned on 12-month retention, structured as a closing cost.

Confidentiality and Non-Compete

Establish confidentiality obligations for both parties and define the scope of the seller's post-closing non-compete. Collision repair non-competes are enforceable in most states and should be geographically scoped to the shop's realistic DRP service area, typically a 15–25 mile radius, for a term of 3–5 years.

💡 Allocating a specific dollar amount to the non-compete in the purchase price is important for both tax treatment and enforceability. Sellers who plan to remain in the industry in an adjacent role (e.g., parts distribution, consulting) should negotiate carve-outs upfront. Geographic scope should reflect the actual DRP service territory — urban shops may warrant a tighter 10-mile radius while rural shops may require 30+ miles.