Letter of Intent Template for Acquiring a General Contracting Business

Parties and Transaction Overview

Identifies the buyer entity, seller entity, and the legal structure of the proposed transaction. For general contracting acquisitions, clarify whether this is an asset purchase or stock purchase early, as it directly affects license transferability, bonding continuity, and liability for completed project claims.

💡 Sellers of general contracting companies often prefer stock sales to avoid recapturing depreciation on equipment and to maintain bonding and license continuity. Buyers typically prefer asset deals to avoid inheriting completed-project liabilities, mechanic's lien exposure, and unknown warranty claims. Expect this to be a primary negotiation point. If proceeding as a stock purchase, insist on robust indemnification provisions and an escrow holdback sized to completed-project warranty exposure.

Purchase Price and Valuation Basis

States the proposed purchase price, the valuation methodology applied, and how normalized EBITDA was calculated. General contracting businesses require explicit normalization for owner compensation, personal vehicle expenses, owner-managed subcontractor markups, and any revenue from one-time projects that should not be included in the run-rate.

💡 Sellers will often argue for higher multiples by including backlog as evidence of forward revenue. Buyers should resist applying a multiple to unearned backlog revenue and instead structure that upside as an earnout. Push for clarity on what constitutes 'normalized' — project-based businesses often have lumpy years, and a single strong year can distort trailing EBITDA significantly. Request three years of job costing reports, not just income statements.

Deal Structure and Payment Terms

Outlines how the purchase price will be funded across cash at close, SBA or bank financing, seller financing, and any earnout components. Construction acquisitions commonly use seller notes and earnouts to bridge valuation gaps created by backlog uncertainty and owner dependency risk.

💡 Sellers will push for the earnout to be based on revenue, not gross margin or EBITDA, because they cannot control post-close overhead decisions. Buyers should insist on margin-based earnout thresholds to prevent sellers from sandbagging the backlog with low-margin work before close. Seller notes are standard in this sector and expected; a seller who refuses any seller financing is a yellow flag in a construction deal where the buyer is taking on meaningful transition risk.

Earnout Tied to Backlog Conversion

Specific to general contracting acquisitions, this section addresses how signed contracts and pipeline commitments at the time of close will be tracked and how the seller will be compensated if that backlog converts to revenue post-close. This protects both parties — the seller gets credit for work in progress, and the buyer avoids overpaying for uncertain revenue.

💡 This section is often the most contested in construction deals. Sellers want credit for the backlog they built; buyers want protection against projects going over budget or being cancelled. Define 'backlog' precisely — only signed contracts with payment schedules, not verbal commitments or proposals. Negotiate a margin floor below which earnout is forfeited on a project-by-project basis, which incentivizes the seller to hand off projects with accurate cost projections during transition.

Working Capital Peg and Retainage Treatment

Establishes the working capital target that will be delivered at close and specifies how retainage receivables — amounts withheld by project owners until project completion — will be handled. Retainage is often the largest current asset on a general contractor's balance sheet and must be addressed explicitly.

💡 Sellers frequently overstate working capital by including stale retainage that is unlikely to be collected. Request a retainage aging schedule by project and verify each balance against the contract's retainage release conditions. Billing-in-excess of costs positions (overbilling) should be treated as a liability in the working capital calculation, not an asset — push for this treatment explicitly in the LOI to avoid renegotiation later.

License and Bonding Contingencies

Addresses the critical requirement that the general contractor's license and bonding capacity remain intact through and after closing. Most states require a licensed qualifier on staff, and ownership changes can trigger bond cancellation or surety review that must be resolved before a deal can close.

💡 This contingency is non-negotiable for any serious buyer. In some states, the qualifying individual must pass an exam or meet experience requirements that a new buyer cannot meet on a compressed timeline. Identify this early — if the seller is the sole qualifier, the deal timeline must accommodate either the buyer obtaining licensure or hiring a qualified individual before close. Surety providers will underwrite the buyer independently; engage your surety broker before signing the LOI to understand bonding capacity requirements.

Holdback for Warranty and Litigation Exposure

Provides for a portion of the purchase price to be held in escrow post-close to cover warranty claims on completed projects, punch list obligations, and any litigation or lien exposure that surfaces after closing. General contractors carry meaningful completed-project risk that can materialize months or years after project delivery.

💡 Sellers will push for a smaller holdback and a shorter release period. Buyers in construction should hold firm on both the amount and the duration given the industry's completed-project tail risk. A 12-month holdback is often insufficient because construction defect claims can arise during the first full seasonal cycle after project completion. Consider tying the holdback release to specific milestones: 50% released at 12 months if no claims, balance at 24 months.

Due Diligence Period and Access

Defines the length of the exclusivity and due diligence period and specifies the records and access Buyer requires. General contracting due diligence is more operationally intensive than most small business acquisitions and requires access to project-level financials, not just company-level statements.

💡 Sixty days is the minimum realistic due diligence period for a general contracting acquisition. If the seller pushes for 30 days, negotiate an automatic 15-day extension if Buyer has raised material issues requiring additional documentation. Insist on access to the project management system (Procore, Buildertrend, or similar) to review job cost tracking and change order history — this is often more revealing than the financial statements.

Exclusivity and No-Shop Provision

Prevents the seller from soliciting or entertaining competing offers during the due diligence period in exchange for the buyer's commitment to proceed in good faith and invest in due diligence costs.

💡 Sellers in competitive markets may resist a 60-day exclusivity period if they have multiple interested buyers. If the seller negotiates exclusivity down to 45 days, ensure the due diligence access provisions are correspondingly tightened to guarantee timely document delivery. Consider including a mutual termination right if the parties cannot agree on definitive agreement terms within the exclusivity period, which protects both sides.

Transition and Non-Compete Provisions

Addresses the seller's post-close involvement in the business, the structure of any consulting or transition arrangement, and the geographic and temporal scope of the non-compete agreement. Owner dependency is the primary risk factor in most general contracting acquisitions, making transition terms especially important.

💡 A 6-month transition is often insufficient for a relationship-heavy construction business; push for 12 months with structured milestones — client introduction meetings, subcontractor relationship transfers, and project handoffs. Non-competes in construction are enforced inconsistently by state, so confirm enforceability in the seller's state before relying on the provision. A seller who resists a meaningful non-compete should be viewed as a significant risk, as their local network is often the business's primary competitive advantage.