Letter of Intent Template for Acquiring a Construction Business

Purchase Price and Valuation Basis

State the proposed total enterprise value and how it was derived — typically a multiple of trailing twelve-month EBITDA adjusted for owner compensation normalization, one-time project charges, and personal expenses run through the business. For construction businesses, clarify whether the purchase price includes or excludes net working capital, open receivables, and work-in-progress balances.

💡 Construction sellers frequently push back on EBITDA adjustments, particularly when personal expenses are intertwined with legitimate project costs. Come prepared with a detailed add-back schedule sourced directly from job cost reports and P&L line items. Sellers also often argue for a higher working capital peg if there is significant unbilled receivables or retainage outstanding. Negotiate a clear definition of what is included in working capital — specifically whether retainage receivable, overbillings, and underbillings are included or treated separately.

Deal Structure and Payment Terms

Define how the purchase price will be paid — including the cash at close, SBA loan proceeds, seller note amount and terms, and any earnout tied to post-close backlog conversion or gross margin performance. Construction acquisitions commonly include holdback escrows to address post-close warranty claims and project close-outs.

💡 Sellers in construction deals are particularly sensitive to earnouts tied to backlog conversion because project timing is often outside their control. If you include a backlog earnout, tie it to gross margin dollars earned on transferred contracts rather than revenue recognized, and set a reasonable time horizon of 12–18 months. The escrow holdback is often a contentious point — sellers want it released quickly, buyers want it held until all active projects at close have been substantially completed and the lien period has passed. A tiered release schedule tied to project close-out milestones is often a workable compromise.

Assets Included and Excluded

Specify what is being acquired — licenses, contracts, equipment, vehicles, tools, trade name, customer relationships, subcontractor agreements, and any real estate leases. Explicitly exclude personal assets, owner-retained real estate, and any assets with title or lien issues. For construction businesses, clarity on equipment ownership versus leased assets is critical.

💡 Pay close attention to equipment schedules in construction acquisitions — sellers often have equipment titled in personal names, related LLCs, or secured by UCC liens from equipment lenders. Require a full equipment list with title confirmation and lien searches as part of early diligence. Also confirm which subcontractor agreements are assignable without consent, as some GC relationships or master subcontract agreements include anti-assignment clauses that require notification or approval.

Backlog and Work-in-Progress Representation

Require the seller to represent that a complete and accurate WIP schedule will be delivered prior to close, and define how open projects, underbillings, overbillings, and retainage will be treated in the transaction. This section is unique to construction and should not be omitted.

💡 The WIP schedule is the single most important financial document in a construction acquisition. Insist on receiving it early — ideally within two weeks of LOI execution — so you can reconcile it against the CPA-prepared financials and identify any jobs with margin fade, overbilling positions, or retainage disputes. Sellers sometimes resist sharing detailed job-level data citing competitive sensitivity; address this with a mutual NDA addendum covering project-specific information. Also watch for jobs that are nearly complete with unapproved change orders outstanding — these represent real contingent revenue risk that could affect your adjusted EBITDA.

Licensing, Bonding, and Insurance Contingencies

Make closing contingent upon confirmation that all state contractor licenses, surety bonds, and key insurance policies are either transferable to the buyer entity or can be reissued in the buyer's name with continuity of coverage. This is a structural requirement in most contractor acquisitions.

💡 Bonding continuity is frequently the longest-lead-time item in a construction close. Engage the surety broker early — ideally before LOI execution if possible — to understand what financial documentation the surety will require from the buyer entity and whether the existing bonding capacity can be maintained. Some sureties will not bond a newly formed acquisition entity without a full indemnification agreement and personal financial statements from the buyer. If the seller's license is held by the owner as a qualifying agent, plan for a 30–90 day licensing transition period that may require the seller to remain as a consultant or temporary qualifying party.

Key-Man Transition and Seller's Post-Close Role

Define the seller's post-close involvement — including duration, compensation, and scope — to address the single greatest risk in most construction acquisitions: the seller's role in client relationships, estimating, and field oversight. This section protects both parties by setting clear expectations.

💡 Construction sellers often agree to a transition in principle but resist formalizing it in a binding agreement. Use the LOI to lock in the duration and structure of the transition before moving to diligence — it is far harder to negotiate post-LOI when the seller's leverage has increased. If the seller is the primary estimator, prioritize identifying and retaining a replacement during due diligence. Some buyers negotiate a portion of the seller note as contingent on the seller's completion of transition milestones, which aligns incentives without requiring a formal earnout structure.

Non-Compete and Non-Solicitation

Require the seller to agree to a reasonable non-compete and non-solicitation covenant covering the geographic markets and trade specialties of the business. In construction, geographic scope should be defined by the Company's actual project radius, not a broad state-wide restriction that may not be enforceable.

💡 Non-compete enforceability in construction is highly state-specific. Some states require the covenant to be supported by independent consideration beyond the purchase price. Tie the non-compete to the definitive agreement and make it a closing condition — not an afterthought. In deals where the seller is retaining rollover equity or participating in an earnout, the non-compete is less contentious because the seller has financial incentive to stay cooperative. For deals with no seller equity rollover, expect more resistance and be prepared to narrow the geographic scope or shorten the duration to reach agreement.

Exclusivity and Diligence Timeline

Grant the buyer a defined exclusivity period during which the seller will not solicit or negotiate with other potential acquirers, and establish a clear due diligence timeline with defined milestones for document delivery, site visits, and financing commitments.

💡 Construction diligence takes longer than most asset-light businesses because of the volume of project-level documentation required — job cost reports, lien waivers, subcontractor agreements, and bonding history all need to be reviewed. Request a 60-day exclusivity window at minimum, with a 30-day extension option. Sellers who have been through a failed prior process are often reluctant to grant long exclusivity periods; demonstrate credibility by arriving with an SBA lender pre-qualification letter and a detailed diligence checklist at LOI execution. Mutual milestone obligations — seller delivers documents, buyer delivers financing commitment — help keep both parties accountable.

Conditions to Closing

List the material conditions that must be satisfied before the transaction can close, including financing approval, license and bond transfers, satisfactory completion of due diligence, and execution of definitive agreements.

💡 The material adverse change clause is particularly important in construction because backlog can shift dramatically between LOI and close — a major project can be cancelled, a key project manager can resign, or a dispute can arise on a large open job. Define MAC specifically to include loss of any single contract exceeding $[X] in value, departure of named key employees, and any new lien filings or bonding claim. Sellers will push for narrow MAC definitions; buyers should hold firm on construction-specific triggers that reflect genuine business risk.