Letter of Intent Template for Acquiring an Electrical Supply Distributor

Buyer and Seller Identification

Identifies the acquiring entity and the selling entity or individual, including legal structure of each party. In electrical distribution acquisitions, clarify whether the buyer is acquiring the business as an asset purchase or entity purchase, as this has direct implications for supplier agreement transferability and sales tax obligations on inventory.

💡 Sellers often prefer entity sales to avoid double taxation on inventory and fixed assets. Buyers almost always prefer asset purchases to avoid assuming undisclosed liabilities and to gain a stepped-up tax basis on inventory and equipment. Negotiate this point early — most electrical distributor deals in the lower middle market close as asset purchases, with the inventory carved out for separate valuation at closing.

Purchase Price and Valuation Basis

States the proposed purchase price, the valuation methodology used to arrive at that figure, and how the price may be adjusted at closing. For electrical distributors, the purchase price typically includes a business enterprise value (applied to EBITDA) plus an inventory component priced separately at a defined cost basis.

💡 EBITDA multiples for electrical distributors typically range from 2.5x to 4.5x depending on supplier exclusivity, customer diversification, and margin quality. Sellers with exclusive Tier 1 manufacturer agreements or recurring municipal accounts will push toward the high end. The inventory adjustment clause is critical — negotiate that obsolete stock (defined as items with no sales activity in the prior 18 months) is excluded from the closing inventory value entirely. Commodity-priced items like copper wire should be valued at the replacement cost on the closing date, not the original purchase price.

Deal Structure and Financing

Outlines how the purchase price will be financed, including any SBA loan component, seller financing, earnout provisions, or equity rollover. Most lower middle market electrical distributor acquisitions use a combination of SBA 7(a) financing with seller participation to bridge any appraisal gap or customer retention risk.

💡 SBA lenders will require the seller note to be on full standby for the first 24 months in most cases. The earnout tied to top-account revenue retention is the most common point of contention in electrical distributor deals — sellers argue they cannot control whether customers stay, while buyers correctly point out that owner-dependent relationships represent the primary attrition risk. Compromise by making the earnout contingent on revenue retention across the full customer base rather than specific named accounts, and include a seller transition services clause requiring the seller to make introductions to all accounts over the first 90 days post-close.

Inventory Audit and Valuation Process

Defines the process, timeline, and methodology for conducting a physical inventory count and determining which items are included in the closing inventory value. This is one of the most important and often most contested sections in any electrical distributor LOI.

💡 Sellers frequently resist formal obsolescence write-downs because years of accumulated slow-moving inventory is often carried at full cost on their books. Engage a third-party inventory specialist with electrical wholesale experience — not a generalist — who can identify dead stock by SKU, assess commodity exposure in wire and conduit categories, and benchmark turnover ratios against industry norms of 6–10 turns per year for healthy distributors. Negotiate the right to deduct the full cost of agreed-obsolete inventory from the closing price rather than simply discarding it.

Supplier Agreement Transferability

Addresses the buyer's right to conduct due diligence on all supplier agreements and the seller's obligation to facilitate assignment or re-execution of those agreements with key manufacturers prior to or at closing. This is uniquely critical for electrical distributors whose pricing tiers and product access depend on manufacturer authorization.

💡 Many electrical manufacturer distribution agreements contain anti-assignment clauses that are triggered by a change of control, even in an asset sale. Some manufacturers treat the new owner as a brand-new applicant, requiring a fresh authorization process that could take 30–90 days and may not guarantee the same pricing tier or territory exclusivity. Identify this risk before signing the LOI and make supplier consent a hard condition of closing — not just a best-efforts obligation. Sellers who have informal verbal pricing arrangements with rep agencies should be required to document those in writing before close.

Customer Concentration Disclosure

Requires the seller to provide a complete revenue breakdown by customer account and establishes concentration thresholds that may affect purchase price or deal structure. Electrical distributors with heavy contractor concentration are among the higher-risk acquisitions in the distribution sector.

💡 Customer concentration is the single biggest valuation discount driver in electrical distribution acquisitions. A business where one GC or mechanical contractor represents 35% of revenue is not worth 4x EBITDA — it is worth significantly less unless that customer has a signed multi-year supply agreement. Push sellers to produce signed purchase agreements or documented preferred supplier relationships wherever possible. In the absence of contracts, weight the earnout heavily toward retention of those top accounts.

Key Employee Retention and Non-Solicitation

Identifies employees critical to business continuity — particularly long-tenured inside and outside sales staff — and establishes expectations for retention agreements, compensation continuity, and non-solicitation obligations to protect the buyer from talent attrition post-close.

💡 Long-tenured inside sales reps at electrical distributors often carry decades of contractor relationship history in their heads, not in a CRM. Make CRM documentation of all active accounts — including contact names, order history, and job preferences — a pre-closing deliverable. Non-compete geography and duration are frequently negotiated; sellers who have been in a specific metro for 25 years will push back on broad restrictions. Focus the non-compete on the specific product categories and service area of the acquired business rather than broad industry exclusions.

Exclusivity and No-Shop Period

Establishes the period during which the seller agrees not to solicit, entertain, or accept competing offers from other buyers, giving the buyer protected time to complete due diligence and secure financing.

💡 Sixty days is the standard for lower middle market distribution deals, though SBA financing timelines often require 75–90 days in practice. Sellers, particularly those working with brokers, will resist long exclusivity periods out of fear of losing other interested parties. Negotiate a 60-day initial period with a structured 30-day extension right tied to demonstrated progress on SBA loan approval or supplier consent milestones. Avoid open-ended exclusivity with no performance benchmarks.

Due Diligence Conditions

Lists the specific due diligence items the buyer requires access to and establishes that the LOI is non-binding and subject to satisfactory completion of due diligence across defined categories specific to electrical distribution.

💡 Electrical distributors often have messy books — particularly around cost of goods sold, where freight, rebates, and volume incentives from manufacturers are inconsistently recorded. Require that the financial statements be presented with COGS broken down by major product category (wire and cable, breakers and panels, conduit and fittings, lighting, etc.) so you can assess margin by product line. Manufacturer rebates and volume incentives that are earned by the seller but not yet paid at closing should be explicitly addressed in the purchase agreement — whether they go to the buyer or seller.

Closing Conditions and Timeline

Establishes the expected closing date, conditions that must be satisfied before closing occurs, and the process for resolving any material issues discovered during due diligence that affect the purchase price or deal structure.

💡 Lease assignment is frequently overlooked in electrical distributor deals — warehouse space is operationally critical and many distributors lease from landlords who require consent for assignment or who have right-of-first-refusal clauses. Identify the lease terms, landlord approval requirements, and any personal guarantees on the lease early in due diligence. If the seller owns the real estate, negotiate a separate market-rate lease for the buyer as a simultaneous closing transaction.