A distillery acquisition involves aged barrel inventory, TTB federal permits, state alcohol licenses, and complex distribution relationships — your LOI needs to address all of it. Use this industry-specific template and guide to protect your position from day one.
A Letter of Intent (LOI) is the foundational document in any distillery acquisition. It establishes the proposed purchase price, deal structure, due diligence timeline, and key conditions before either party invests significant time and legal fees in a definitive agreement. In the craft spirits industry, a generic LOI will leave critical issues unaddressed — specifically, how aged barrel inventory will be valued, whether existing TTB federal permits and state alcohol licenses are transferable, and how distributor relationships will be handled through the transition. For distillery transactions in the $1M–$5M revenue range, the LOI typically runs three to six pages and is non-binding except for exclusivity, confidentiality, and expense allocation provisions. Buyers should use the LOI to lock in deal structure before commissioning a full barrel inventory audit or TTB compliance review, both of which carry meaningful cost. Sellers should use the LOI to confirm buyer financing capacity, SBA pre-qualification status, and seriousness before opening their books, customer lists, and production records to any prospective acquirer. This guide covers every major LOI section with distillery-specific example language, negotiation notes, and the five most costly mistakes made in craft spirits transactions.
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Identifies the buyer entity, seller entity, and the legal structure of the proposed transaction — asset purchase, stock purchase, or merger. For distilleries, the choice between asset and stock purchase has significant implications for TTB permit and state license transferability, which must be flagged here.
Example Language
This Letter of Intent is entered into between [Buyer Entity Name], a [state] [LLC/Corporation] ('Buyer'), and [Seller Legal Entity Name], a [state] LLC ('Seller'), owner and operator of [Distillery Trade Name] located at [address]. Buyer proposes to acquire substantially all of the assets of Seller, including the distillery brand, TTB federal basic permit, all applicable state alcohol licenses, aged barrel inventory, production equipment, intellectual property, and related goodwill, through an asset purchase transaction. The parties acknowledge that license transferability and regulatory approval timelines will be addressed as a condition to closing.
💡 Sellers should push for a stock purchase structure when TTB permits and state licenses are held at the entity level and a new application would cause operational disruption. Buyers typically prefer an asset purchase to avoid assuming unknown liabilities, including any undisclosed TTB compliance issues or state regulatory violations. If the parties agree to an asset purchase, the LOI should explicitly acknowledge that obtaining TTB and state regulatory approvals will be a closing condition with a realistic timeline — often 60 to 120 days or longer depending on the state.
Purchase Price and Consideration
States the total proposed purchase price, how it is allocated across business goodwill, equipment, real property (if included), and aged barrel inventory, and how the consideration will be paid — cash at closing, seller note, earnout, or SBA loan proceeds.
Example Language
Buyer proposes a total purchase price of $[X], allocated as follows: (i) $[X] for business goodwill, brand assets, and intellectual property; (ii) $[X] for distillery equipment, stills, barrel storage infrastructure, and bottling line as supported by an equipment appraisal to be completed during due diligence; (iii) aged barrel inventory valued at $[X], subject to adjustment based on a third-party barrel inventory audit conducted during due diligence; and (iv) $[X] for finished goods and raw materials inventory at cost. The purchase price will be funded as follows: $[X] at closing through SBA 7(a) financing, $[X] through a seller note bearing [X]% interest over [X] years, and $[X] through an earnout tied to brand revenue milestones as described below.
💡 Aged barrel inventory is the most contested line item in distillery LOIs. Buyers should insist that the barrel inventory value stated in the LOI is explicitly subject to downward adjustment based on a third-party audit covering actual barrel count, fill dates, spirits yield projections, and evaporation loss. Sellers should resist a blanket open-ended adjustment and negotiate a cap on any downward revision — typically no more than 10 to 15 percent — unless the audit reveals material discrepancies. If an SBA 7(a) loan is involved, the total enterprise value including inventory must fall within SBA guidelines, and the lender will require an independent equipment appraisal and business valuation.
Earnout Structure
Defines performance-based contingent payments tied to the distillery's post-closing revenue or gross profit, most commonly used when buyer and seller disagree on the value of brand equity, distribution reach, or a new product line that has not yet generated meaningful revenue.
Example Language
In addition to the cash consideration paid at closing, Buyer agrees to pay Seller an earnout of up to $[X] over a [24/36]-month period following the closing date, calculated as follows: Seller will receive [X]% of gross revenues attributable to the [Brand Name] label in excess of $[base threshold] per year, measured quarterly and paid within 30 days of each quarter-end. Buyer agrees to maintain the [Brand Name] product line in active distribution throughout the earnout period and not to take any action reasonably calculated to suppress earnout payments. Seller will have reasonable audit rights with respect to revenue records supporting earnout calculations.
💡 Earnouts in distillery transactions are most appropriate when valuing a new whiskey or bourbon product line that is not yet generating full revenue due to aging requirements. Sellers should negotiate explicit anti-dilution protections — for example, requiring the buyer to maintain minimum marketing spend or distribution territory coverage during the earnout period. Buyers should cap total earnout exposure and define clearly which revenues are included, particularly if they plan to introduce new SKUs or reposition the brand after closing. Both parties should agree on the accounting methodology for gross revenue before signing.
Deposit and Exclusivity
Establishes the good faith deposit amount, its disposition if the deal fails to close, and the exclusivity period during which the seller agrees not to solicit or entertain competing offers.
Example Language
Upon execution of this LOI, Buyer will deliver a good faith deposit of $[X] to an escrow account maintained by [Escrow Agent]. The deposit will be applied to the purchase price at closing. If Buyer terminates this LOI for any reason other than a material failure of a closing condition expressly stated herein, the deposit will be forfeited to Seller as liquidated damages. If Seller terminates or accepts a competing offer during the exclusivity period, Seller will return the deposit to Buyer within five business days. Seller grants Buyer an exclusive negotiating period of [60/90] days from the date of this LOI, during which Seller will not solicit, entertain, or enter into discussions with any other prospective purchaser.
💡 Craft distillery sellers should push for a meaningful deposit — typically 1 to 3 percent of the total purchase price — to screen out unserious buyers given the significant time required to prepare TTB documentation, organize barrel inventory records, and manage distributor communications. Buyers should negotiate a clear carve-out allowing them to terminate without forfeiting the deposit if TTB or state license transferability issues are discovered during due diligence, or if the barrel inventory audit reveals a material variance from the seller's stated values. Exclusivity periods of 60 days are standard; 90 days may be warranted if the transaction involves real estate or multiple state license transfers.
Due Diligence Conditions
Enumerates the specific due diligence workstreams the buyer intends to conduct, including TTB and state licensing review, barrel inventory audit, equipment inspection, financial review, and distributor agreement analysis, and sets the timeline for completion.
Example Language
Buyer's obligation to close is conditioned upon satisfactory completion of due diligence, including without limitation: (i) review and verification of all TTB federal basic permits and state alcohol beverage licenses, including compliance history and transferability analysis; (ii) independent third-party barrel inventory audit covering all aging spirits, including fill dates, barrel count, spirits type, and estimated yield at maturity; (iii) review of three years of financial statements, federal and state tax returns, and a seller-prepared add-back schedule; (iv) inspection and appraisal of all distillery equipment including stills, condensers, fermenters, and bottling line; (v) review of all distributor agreements, territory exclusivity arrangements, and key customer relationships; and (vi) review of all intellectual property registrations including brand trademarks, trade dress, and recipe documentation. Buyer will complete due diligence within [45/60] days of receiving a complete data room from Seller.
💡 TTB federal permit and state license transferability is the single most important due diligence item in a distillery transaction and should always be listed first. Buyers should engage an alcohol beverage attorney within the first two weeks of due diligence to assess license transfer timelines in every state where the distillery holds permits. Sellers should organize all compliance documentation before signing the LOI to avoid wasting exclusivity time on document collection. The barrel inventory audit should be conducted by a third party with industry-specific experience — not a general appraiser — as it requires knowledge of spirits yield calculation, barrel aging curves, and fair market value for work-in-progress aged spirits.
Closing Conditions
Lists the specific conditions that must be satisfied before the transaction can close, with particular attention to regulatory approvals, license transfers, key employee retention, and financing contingencies.
Example Language
Closing of the transaction is conditioned upon: (i) receipt of all required TTB federal approvals and state alcohol beverage license transfers or new license issuances in all applicable jurisdictions; (ii) confirmation that all material distributor agreements have been assigned to Buyer or that new agreements acceptable to Buyer have been executed with the same distributors; (iii) execution of [X]-month employment or consulting agreements with key distillers and production staff identified during due diligence; (iv) Buyer's receipt of final SBA 7(a) loan commitment in form and substance acceptable to Buyer; (v) no material adverse change in the business, financial condition, or regulatory status of the distillery between LOI execution and closing; and (vi) Seller's delivery of a clean barrel inventory schedule updated as of the closing date.
💡 Regulatory approval timelines are the most common cause of distillery deal extensions or failures. Both parties should agree upfront that the closing date will be extended automatically if TTB or state license approvals are pending through no fault of either party, with a long-stop date typically 180 days from LOI execution. Sellers should push back on overly broad material adverse change provisions that could allow a buyer to exit on pretextual grounds. Key employee retention is critical in distillery transactions where institutional knowledge of recipes, fermentation protocols, and equipment maintenance is concentrated in one or two individuals — buyers should identify these employees during diligence and execute retention agreements before closing.
Confidentiality and Non-Solicitation
Prohibits either party from disclosing transaction discussions, financial information, or proprietary production data to third parties, and restricts the seller from soliciting key employees if the deal fails to close.
Example Language
Each party agrees to keep the existence of this LOI and all information exchanged in connection with this transaction strictly confidential and not to disclose such information to any third party without the prior written consent of the other party, except to legal counsel, financial advisors, and lenders on a need-to-know basis under equivalent confidentiality obligations. Seller specifically acknowledges that production recipes, barrel inventory records, and distributor pricing agreements disclosed during due diligence constitute proprietary trade secrets of the business. If this LOI is terminated for any reason, Buyer agrees to return or destroy all confidential materials within five business days and will not use such materials to compete with Seller or solicit Seller's distributors or key employees for a period of [12/24] months.
💡 Confidentiality is particularly important in the craft spirits industry, which is a tight-knit community where word of a potential sale can alarm distributors, key accounts, and production staff. Sellers should require that buyer disclosure of the transaction to any third party — including potential co-investors or lenders — be conditioned on those parties executing equivalent confidentiality agreements. Buyers should ensure the confidentiality provision does not prevent them from disclosing the transaction to their SBA lender or legal counsel.
Binding and Non-Binding Provisions
Explicitly identifies which sections of the LOI are legally binding and which represent non-binding statements of intent, protecting both parties from premature contractual obligations while preserving enforceability of key provisions.
Example Language
This Letter of Intent is intended to be non-binding upon the parties except for the following provisions, which shall be legally binding: Section [X] (Deposit and Escrow), Section [X] (Exclusivity), Section [X] (Confidentiality and Non-Solicitation), and Section [X] (Expense Allocation). All other provisions of this LOI represent the current good faith intentions of the parties and do not constitute binding legal obligations. Neither party shall have any obligation to consummate the proposed transaction, and either party may terminate negotiations at any time prior to execution of a definitive purchase agreement, subject to the binding provisions above.
💡 Clearly delineating binding from non-binding provisions prevents disputes about whether the LOI itself constitutes an enforceable contract. Both parties' attorneys will typically negotiate this language carefully. Sellers should ensure the deposit forfeiture provision and exclusivity restriction are explicitly listed as binding. Buyers should confirm that the purchase price, deal structure, and earnout terms are explicitly non-binding so they retain flexibility to renegotiate if due diligence reveals issues with barrel inventory, equipment condition, or compliance history.
Barrel Inventory Valuation Method and Adjustment Mechanism
The method used to value aged spirits in barrels is the most financially significant negotiation point in most distillery LOIs. Buyers and sellers must agree on whether barrels will be valued at cost (raw materials plus production labor), at a discounted market value based on projected yield, or at fair market value for aged spirits of equivalent type and age. The LOI should specify who conducts the audit, who pays for it, and the maximum adjustment permitted if the audit result differs from the seller's stated inventory value. Sellers should resist open-ended adjustments; buyers should resist being locked into a barrel value before completing an independent audit.
TTB and State License Transfer Risk Allocation
If the TTB basic permit or any state alcohol license cannot be transferred to the buyer entity within the agreed timeline, the deal may need to be restructured or the closing extended. The LOI should specify which licenses are being acquired, who bears the cost of new license applications, and what happens if a state denies transfer. In states where new applications are required rather than transfers, the timeline can extend to 90 to 180 days. Both parties should agree on a process for interim operations management if closing is delayed by regulatory timelines.
Earnout Guardrails and Anti-Suppression Protections
If the purchase price includes an earnout tied to post-closing brand revenue, the seller must negotiate explicit protections against buyer actions that could suppress earnout payments — such as discontinuing a product line, cutting marketing spend below a defined threshold, or redirecting distribution to a competing brand. Buyers should insist on a cap on total earnout exposure and a clear definition of which revenue streams count toward earnout calculations, particularly if the buyer plans to introduce new SKUs or rebrand after closing.
Key Employee Retention and Transition Period
Craft distilleries are often highly dependent on one or two individuals who hold proprietary knowledge of fermentation protocols, still operation, barrel selection, and quality control. The LOI should address whether key distillers and production staff will be offered employment agreements by the buyer, what compensation terms are expected, and whether the seller will provide a transition consulting period after closing. Sellers should not commit to extended post-closing involvement without compensation terms being agreed at the LOI stage.
Distributor Agreement Assignment and Territory Protection
Distributor relationships represent a significant portion of a distillery's enterprise value and are often governed by state franchise laws that restrict a buyer's ability to terminate or replace distributors. The LOI should address how distributor agreements will be handled — whether they will be assigned to the buyer, whether new agreements will be negotiated, and what happens if a key distributor declines to work with the new owner. Buyers should conduct preliminary distributor conversations during due diligence and make distributor agreement continuity an explicit closing condition.
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Most provisions of a distillery LOI are intentionally non-binding — including the purchase price, deal structure, and earnout terms — because both parties need flexibility to adjust those terms as due diligence reveals new information. However, certain provisions are typically made legally binding from the moment the LOI is signed: the good faith deposit and escrow terms, the exclusivity period restricting the seller from talking to other buyers, the confidentiality and non-solicitation obligations, and the expense allocation provision. If you are unsure which sections are binding, have an alcohol beverage attorney review the LOI before you sign.
Most distillery LOIs grant the buyer an exclusivity period of 60 to 90 days. Because distillery due diligence involves specialized workstreams — TTB and state license review, barrel inventory audit, equipment appraisal, and distributor agreement analysis — 60 days is often insufficient if the seller has not pre-organized their data room. If the transaction involves real estate, multiple state licenses, or a complex earnout structure, 90 days is more appropriate. Both parties should agree on a protocol for extending exclusivity if regulatory approvals are pending through no fault of either party.
Aged barrel inventory is most commonly valued using one of three methods: cost basis (raw materials plus direct production labor), which typically understates value for well-aged spirits; discounted market value based on projected yield and prevailing bulk spirits prices at the expected maturity date; or fair market value for comparable aged spirits of the same type, proof, and age profile. Buyers should always insist on a third-party barrel inventory audit conducted by a spirits industry specialist, and the LOI should explicitly state that the barrel inventory line item in the purchase price is subject to adjustment based on audit results. This is the most frequently contested valuation issue in distillery transactions.
No. TTB federal basic permits are not transferable in an asset purchase — the buyer must apply for a new permit, which can take 60 to 120 days or longer. This is a critical reason why many distillery acquisitions are structured as stock purchases, where the existing legal entity (and its TTB permit) is acquired intact. However, a stock purchase exposes the buyer to all historical liabilities of the entity, including any undisclosed TTB compliance violations or state regulatory issues. Both structures have tradeoffs, and the LOI should explicitly identify which structure is proposed and how regulatory approval timelines will be managed as a closing condition.
Sellers should share high-level financial information — typically a seller's discretionary earnings summary and revenue overview — before signing an LOI to allow the buyer to formulate a realistic offer. Detailed financial statements, tax returns, barrel inventory records, recipes, and distributor agreements should not be disclosed until the LOI is signed, the good faith deposit is received, and a confidentiality agreement is in place. In the craft spirits industry, recipe and production methodology disclosure is particularly sensitive and should be limited to parties who have demonstrated financial capacity and signed binding confidentiality obligations.
Earnouts in distillery transactions typically range from 10 to 25 percent of total purchase price and are most commonly tied to gross revenue from a specific brand or product line over a 24 to 36 month period following closing. They are most appropriate when part of the purchase price reflects the projected value of an aged product line — such as a small batch bourbon or single malt whiskey — that has not yet reached full revenue potential due to aging timelines. Sellers should negotiate anti-suppression protections requiring the buyer to maintain minimum distribution coverage and marketing spend, and should have audit rights over the revenue records used to calculate earnout payments.
This is a real risk in distillery acquisitions, particularly in states with strong alcohol franchise laws that restrict a buyer's ability to terminate or replace distributors. If a key distributor declines to continue the relationship after an ownership change, the buyer may lose meaningful distribution territory with limited legal recourse. Buyers should conduct informal distributor conversations during due diligence — without disclosing confidential deal terms — to assess relationship strength and identify any concerns. Distributor agreement continuity should be listed as an explicit closing condition in the LOI, and buyers should understand the franchise law landscape in every state where the distillery currently distributes product.
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