Structure your offer with confidence. This LOI template and guide is purpose-built for food manufacturing and co-packing acquisitions — covering purchase price anchoring, customer concentration risk, equipment valuation, and food safety certification continuity.
A Letter of Intent (LOI) is the pivotal document that converts exploratory conversations into a structured acquisition process. In food manufacturing and co-packing deals, the LOI carries outsized importance because it sets the stage for due diligence on issues that are uniquely consequential in this industry: FDA and USDA regulatory compliance history, the condition and remaining useful life of specialized processing equipment, the transferability of co-packing contracts, and the continuity of food safety certifications like SQF, BRC, and HACCP. A well-drafted LOI protects the buyer from surprises that could materially alter valuation — such as discovering an undisclosed FDA warning letter or finding that a single client represents 50% of revenue — while giving the seller confidence that the buyer is serious, financially qualified, and capable of closing. For lower middle market food manufacturers in the $1M–$5M revenue range, LOIs typically reflect enterprise values of 3x to 5.5x EBITDA, with deal structures often combining SBA 7(a) financing, seller notes, and performance-based earnouts tied to customer retention or production volume milestones. This guide walks through every section of the LOI, explains what to negotiate hard on and where to show flexibility, and flags the mistakes that kill food manufacturing deals before they reach the closing table.
Find Food Manufacturing & Co-Packing Businesses to Acquire1. Identification of Parties and Business
Clearly identifies the buyer entity, the seller, and the specific legal entity or assets being acquired. In food manufacturing transactions, it is critical to specify whether the acquisition is structured as an asset purchase or a stock purchase, since this directly affects how FDA facility registrations, USDA establishment numbers, and third-party food safety certifications (SQF, BRC) are transferred or re-issued post-close.
Example Language
This Letter of Intent ('LOI') is entered into as of [Date] by and between [Buyer Name or Entity] ('Buyer') and [Seller Name or Entity] ('Seller') regarding the proposed acquisition of substantially all of the assets of [Company Name], a [State] [entity type] engaged in food manufacturing and co-packing operations located at [Facility Address] ('the Business'). The transaction is intended to be structured as an asset purchase. Buyer acknowledges that the transfer of FDA facility registrations, any applicable USDA establishment numbers, and third-party food safety certifications will be addressed in the definitive Asset Purchase Agreement.
💡 Sellers should confirm whether their food safety certifications — particularly SQF Level 2 or higher — are transferable to a new entity or require re-certification. Buyers should request the facility's FDA registration number and any USDA grant of inspection details upfront so legal counsel can assess transfer timing. If the deal is structured as a stock purchase to preserve certifications, the buyer must also inherit all regulatory liabilities, including any open FDA 483 observations or FSMA enforcement actions.
2. Purchase Price and Valuation Basis
States the proposed total enterprise value and the basis for that valuation. In food manufacturing and co-packing, purchase price is typically expressed as a multiple of trailing twelve-month (TTM) or three-year average EBITDA, adjusted for owner compensation, one-time expenses, and non-cash charges. Equipment condition, customer concentration, and certification status all influence where within the 3x–5.5x EBITDA range the offer lands.
Example Language
Buyer proposes to acquire the Business for a total enterprise value of approximately $[X,XXX,000], representing approximately [X.X]x the Business's trailing twelve-month EBITDA of $[XXX,000] as reported in the most recent financial statements provided by Seller. This valuation assumes: (i) no single co-packing customer accounts for more than 30% of trailing twelve-month revenue; (ii) all food safety certifications (SQF, BRC, HACCP, as applicable) are current and in good standing; (iii) processing and packaging equipment is in serviceable condition with no deferred capital expenditures exceeding $[XX,000]; and (iv) no outstanding FDA warning letters, recall events, or material FSMA enforcement actions exist. The purchase price is subject to adjustment following completion of due diligence.
💡 Buyers should explicitly state the assumptions underpinning the multiple — especially around customer concentration and equipment condition — so that any adverse findings discovered in due diligence provide a contractual basis for price reduction. Sellers with clean SQF Level 2+ audits, modern equipment, and diversified co-packing contracts should push for the upper end of the 4.5x–5.5x range and resist valuation conditions that are overly broad. Both parties should agree upfront on the EBITDA calculation methodology and which add-backs are acceptable.
3. Deal Structure and Financing
Outlines how the transaction will be financed and how consideration will be allocated between cash at close, seller financing, and any contingent earnout. Food manufacturing acquisitions in the lower middle market frequently combine SBA 7(a) loans (covering 70–80% of the acquisition price), a seller note (10–15%), and buyer equity (10–20%). Earnouts tied to customer retention or production volume milestones are common when co-packing revenue is concentrated or contracts are month-to-month.
Example Language
The proposed transaction will be financed as follows: (i) SBA 7(a) loan proceeds of approximately $[X,XXX,000], subject to lender approval and SBA eligibility confirmation; (ii) a seller note of $[XXX,000] at [X]% annual interest, payable over [X] years, subordinated to the SBA loan per standard SBA standby requirements; (iii) buyer equity of $[XXX,000]; and (iv) an earnout of up to $[XXX,000] payable over [24] months post-close, contingent upon retention of co-packing revenue from the Business's top three customers at no less than [85]% of the trailing twelve-month contracted volume. Buyer intends to apply for SBA financing within [10] business days of LOI execution.
💡 Sellers should negotiate earnout measurement periods carefully — a 24-month window tied to customer volume retention is reasonable, but sellers should insist on clearly defined measurement criteria, anti-sandbagging provisions, and the right to audit earnout calculations. Buyers relying on SBA financing should confirm food manufacturing equipment and real estate (if included) meets SBA collateral requirements. SBA lenders will require a business appraisal and equipment appraisal, so both parties should expect a 60–90 day timeline to close from LOI execution.
4. Due Diligence Scope and Timeline
Defines the scope of the buyer's due diligence investigation and the timeline for completion. In food manufacturing and co-packing, due diligence goes beyond financials to include regulatory compliance history, equipment appraisals, food safety certification records, co-packing contract review, and raw material supplier agreements.
Example Language
Buyer shall conduct due diligence for a period of [45–60] days from the date of LOI execution ('Due Diligence Period'). Seller agrees to provide reasonable access to the following documentation within [10] business days of LOI execution: (i) three years of financial statements (CPA-reviewed or audited preferred) and monthly management accounts; (ii) all FDA and USDA inspection records, including any Form 483 observations, warning letters, or recall documentation for the past five years; (iii) current food safety certifications (SQF, BRC, HACCP, organic, kosher, allergen-free) and the two most recent third-party audit reports; (iv) all co-packing customer contracts, pricing schedules, volume commitments, and renewal or termination provisions; (v) a complete equipment inventory with age, condition, maintenance records, and estimated replacement value; (vi) raw material supplier agreements and documentation of any contractual ingredient price pass-through provisions; and (vii) an organizational chart identifying key production, quality, and sales personnel.
💡 Buyers should not waive or shorten the due diligence period for food manufacturing deals — regulatory and equipment surprises discovered post-close can be extraordinarily costly. Sellers should pre-organize a virtual data room before marketing the business to avoid delays that erode buyer confidence. If the buyer discovers FDA 483 observations or failed third-party food safety audits during due diligence, both parties should establish a protocol for resolving these findings before closing rather than abandoning the deal, as many issues are curable with corrective action plans.
5. Exclusivity and No-Shop Period
Grants the buyer an exclusive negotiating window during which the seller agrees not to solicit or entertain offers from other buyers. This protects the buyer's investment of time and resources in conducting food manufacturing-specific due diligence, including equipment appraisals and regulatory record reviews.
Example Language
In consideration of Buyer's commitment to conduct due diligence and incur associated costs, Seller agrees to a period of exclusive negotiation ('Exclusivity Period') of [45] days from the date of LOI execution, extendable by mutual written consent for up to an additional [15] days. During the Exclusivity Period, Seller shall not, directly or indirectly, solicit, encourage, or respond to acquisition inquiries from any third party, and shall promptly notify Buyer of any unsolicited approaches received.
💡 Sellers should resist exclusivity periods exceeding 60 days unless the buyer has demonstrated clear financing readiness and a detailed due diligence plan. Buyers should seek exclusivity from the moment the LOI is signed, as co-packing businesses with clean regulatory histories and diversified contract bases attract multiple qualified buyers. If SBA financing is involved, buyers should use the exclusivity period aggressively to advance lender engagement in parallel with due diligence.
6. Conditions to Closing
Lists the material conditions that must be satisfied before the transaction can close. For food manufacturing acquisitions, these conditions are broader than typical service businesses and should address regulatory, contractual, and operational continuity requirements.
Example Language
The closing of this transaction is conditioned upon: (i) satisfactory completion of Buyer's due diligence in its sole but reasonable discretion; (ii) execution of a mutually acceptable definitive Asset Purchase Agreement; (iii) receipt of SBA 7(a) loan approval and commitment letter on terms acceptable to Buyer; (iv) confirmation that all material co-packing contracts are assignable to Buyer or that key customers have provided written consent to assignment; (v) confirmation that food safety certifications (SQF, BRC, HACCP, as applicable) are current and that the certifying bodies have confirmed the process for transferring or re-issuing certifications post-close; (vi) no material adverse change in the Business, including loss of any customer representing more than 10% of revenue, FDA enforcement action, or equipment failure requiring capital expenditure exceeding $[XX,000]; and (vii) completion of a satisfactory equipment appraisal confirming aggregate replacement value of no less than $[X,XXX,000].
💡 The 'no material adverse change' condition is particularly important in co-packing businesses where loss of a single large customer between LOI signing and closing can fundamentally alter the business's value. Buyers should define material adverse change with specificity — including revenue concentration thresholds and equipment failure thresholds — rather than relying on generic MAC language. Sellers should push back on conditions that give the buyer unlimited discretion to walk away, and should negotiate for a cure period before MAC conditions can be triggered.
7. Transition and Seller Involvement Post-Close
Defines the seller's role following the close of the transaction. In food manufacturing and co-packing, owner-dependent operations are common, and a structured transition period is essential to preserve customer relationships, transfer production knowledge, and ensure food safety and quality systems continuity.
Example Language
Seller agrees to remain engaged as a consultant to the Business for a period of [6–12] months post-close at a mutually agreed compensation rate of $[X,XXX] per month, providing transition assistance including: (i) introduction of Buyer to all co-packing customers and key supplier contacts; (ii) transfer of institutional knowledge related to proprietary formulations, production processes, and quality control procedures; (iii) support for food safety certification audits or re-certifications required as a result of the ownership transition; and (iv) training of Buyer or Buyer's designated management team on equipment operation and preventive maintenance protocols. Seller shall not be required to work more than [20] hours per week during the transition period.
💡 Buyers should negotiate a meaningful transition period — 6 months at minimum, 12 months for businesses where the owner holds critical customer relationships or production expertise. Sellers should ensure the consulting compensation is clearly defined, that non-compete restrictions tied to the transition period are geographically and functionally reasonable, and that they are not held personally liable for post-close regulatory issues arising from conditions that predated the sale. Non-compete agreements for food manufacturing sellers typically restrict competition within a 100–200 mile radius for 3–5 years.
8. Confidentiality and Non-Disclosure
Reaffirms confidentiality obligations governing the sharing of sensitive business information during the due diligence process. For food manufacturing businesses, this includes proprietary formulations, customer contract terms, pricing agreements, and food safety audit results.
Example Language
All information shared by Seller with Buyer in connection with this LOI and the due diligence process — including but not limited to financial records, co-packing customer identities and contract terms, proprietary food formulations, processing technology, food safety audit reports, and regulatory correspondence — shall be treated as strictly confidential. Buyer agrees not to disclose such information to any third party other than its legal counsel, financial advisors, lenders, and due diligence consultants who are bound by equivalent confidentiality obligations. This confidentiality obligation shall survive any termination of this LOI for a period of [3] years.
💡 Sellers should ensure that the confidentiality provisions expressly cover proprietary formulations and unique processing capabilities, as these represent core competitive value in specialty food manufacturing and co-packing. Buyers should confirm that the NDA entered into prior to the LOI remains in force and that this LOI's confidentiality language is consistent with the earlier NDA. Both parties should agree on a protocol for sharing customer names — some sellers prefer to anonymize key customers in early due diligence stages to protect relationships until a deal is more certain.
9. Non-Binding Nature and Binding Provisions
Clarifies which provisions of the LOI are binding on both parties and which are non-binding expressions of intent. Standard practice is for the exclusivity, confidentiality, and expense allocation provisions to be binding, while the economic and structural terms are non-binding pending execution of a definitive agreement.
Example Language
This LOI is intended to be non-binding on the parties with respect to the proposed transaction, except that the following sections shall constitute binding obligations: (i) Section 5 (Exclusivity and No-Shop Period); (ii) Section 8 (Confidentiality and Non-Disclosure); and (iii) this Section 9. Neither party shall have any legal obligation to consummate the proposed transaction unless and until a definitive Asset Purchase Agreement has been executed by both parties. Each party shall bear its own legal, advisory, and due diligence costs incurred in connection with this LOI and the proposed transaction, unless otherwise agreed in writing.
💡 Both buyers and sellers should have experienced M&A counsel review the binding vs. non-binding language before signing. In food manufacturing deals involving SBA financing, buyers should be aware that SBA lenders may require certain representations — such as the absence of FDA enforcement actions — to be incorporated into the definitive agreement as seller representations and warranties, not merely LOI conditions. Sellers should resist any language that creates implied obligations to close if due diligence is satisfactory.
Customer Concentration Thresholds and Earnout Triggers
In co-packing businesses where one or two clients drive the majority of revenue, the purchase price and earnout structure must directly reflect customer retention risk. Buyers should negotiate earnout payments tied to verified post-close revenue from the top three co-packing customers, with specific percentage thresholds (e.g., 85% retention of contracted volume) and measurement periods of 12–24 months. Sellers should push for shorter earnout windows, objective measurement criteria, and anti-sandbagging provisions that prevent a new owner from deliberately undermining customer relationships to avoid earnout payments.
Equipment Condition Representations and Price Adjustment Mechanisms
Specialized food processing equipment — including mixers, fillers, retorts, tunnel freezers, and packaging lines — represents a significant portion of asset value in food manufacturing acquisitions. Buyers should negotiate the right to conduct an independent equipment appraisal during due diligence, with a clear price adjustment mechanism if the appraised value or discovered deferred maintenance materially differs from seller representations. Sellers should proactively obtain an equipment appraisal before going to market and provide documented preventive maintenance records to defend their stated equipment values.
Food Safety Certification Transfer and Re-Certification Costs
SQF, BRC, and organic certifications are transferable to new ownership in most cases, but the process varies by certifying body and can require a re-audit or provisional certification period. The LOI should specify who bears the cost and scheduling responsibility for any required re-audits or re-certifications post-close, and should include a representation from the seller that no corrective action notices or certification suspensions are pending. In deals where the facility is scheduled for an annual recertification audit shortly after close, both parties should negotiate who manages the process and bears the cost.
Working Capital Peg and Inventory Valuation
Food manufacturing businesses carry meaningful inventory — raw ingredients, packaging materials, and finished goods — that must be valued accurately at close. The LOI should define a working capital peg based on trailing average working capital (typically 60–90 days of operations), and both parties should agree on the methodology for valuing inventory, including whether near-expiry or slow-moving finished goods inventory will be included at full or discounted value. Buyers should be particularly attentive to perishable raw material inventory that may deteriorate in value between LOI signing and closing.
Non-Compete Scope and Transition Consulting Terms
Non-compete agreements in food manufacturing acquisitions must be carefully scoped to be enforceable and commercially reasonable. Buyers should negotiate non-compete restrictions that cover the specific product categories, geographic markets, and customer types relevant to the co-packing business — typically a 3–5 year term within a 100–200 mile radius. Sellers should resist overly broad non-competes that effectively prevent them from ever working in the food industry again, and should ensure the consulting compensation for the transition period is fair market value rather than a nominal amount that could later be challenged as inadequate consideration.
Find Food Manufacturing & Co-Packing Businesses to Acquire
Enough information to write a strong LOI on day one — free to join.
For food manufacturing and co-packing acquisitions, a 45–60 day exclusivity period is standard and realistic. Unlike simpler service businesses, food manufacturing due diligence requires time to review FDA and USDA inspection records, conduct an independent equipment appraisal, analyze co-packing customer contracts, and verify the status of food safety certifications. If SBA 7(a) financing is involved, the lender's credit approval process alone typically takes 30–45 days. Buyers should request a minimum of 45 days with an option to extend by 15 days by mutual agreement. Sellers should resist any exclusivity period shorter than 30 days, as inadequate time for due diligence increases the likelihood of post-LOI renegotiation or deal abandonment.
Food manufacturing and co-packing businesses in the $1M–$5M revenue range typically transact at 3x–5.5x EBITDA. The appropriate multiple depends on several factors: businesses with diversified co-packing contracts (no single client over 30% of revenue), current SQF Level 2+ or BRC certifications, well-maintained modern equipment, and documented SOPs with a management team in place warrant the upper end of the range (4.5x–5.5x). Businesses with customer concentration risk, aging equipment, owner-dependent operations, or inconsistent margins typically transact at 3x–4x. In an LOI, buyers should state the proposed multiple clearly and explicitly enumerate the assumptions — particularly around customer concentration and equipment condition — so that adverse due diligence findings provide a legitimate basis for price adjustment.
It depends on the certification body, the deal structure, and the nature of the change in ownership. In an asset purchase, most food safety certifications — including SQF, BRC, and organic — are not automatically transferred and will require the new owner to apply for a new certificate, often triggering a re-audit. In a stock purchase where the legal entity is unchanged, certifications typically remain in force, but the certifying body must usually be notified and may conduct a surveillance audit. Buyers should contact the certifying body directly during due diligence to confirm the transfer process and timeline. The LOI should allocate responsibility for certification transfer costs and specify that no certification suspensions or corrective action notices are pending. For a co-packing business where certifications are a core competitive asset — particularly SQF Level 2 or higher — this issue can affect deal structure decisions.
Earnouts in co-packing acquisitions are most effectively structured around measurable, objective metrics directly tied to the concentration risk identified during initial due diligence. The most common approach is a revenue or volume retention earnout: the seller receives an additional payment if post-close revenue from specified co-packing customers (typically the top 2–3 by revenue) remains at or above a defined threshold — for example, 85% of trailing twelve-month contracted volume — over a 12–24 month measurement period. The LOI should define the specific customers included, the measurement methodology, the earnout payment schedule, the seller's right to audit earnout calculations, and anti-sandbagging provisions preventing the buyer from deliberately undermining customer relationships. Earnout amounts typically range from 10–25% of total purchase price in co-packing deals with meaningful concentration risk.
Discovery of an undisclosed FDA warning letter, recall event, Form 483 observation, or material FSMA enforcement action during due diligence is grounds for price renegotiation, deal restructuring, or deal termination — depending on severity. A well-drafted LOI will include an explicit representation from the seller regarding the absence of material regulatory actions and will define FDA/USDA inspection history as a specific due diligence condition. Buyers who discover such issues should first assess severity: minor Form 483 observations with documented corrective action responses are often manageable; active warning letters or recall investigations are material issues that require legal and food safety counsel before proceeding. Sellers should proactively disclose all regulatory correspondence in the data room rather than allowing buyers to discover it independently, as non-disclosure creates legal liability and destroys trust at the most critical stage of the transaction.
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