Letter of Intent Template for Acquiring a Hardscape & Patio Company

Parties and Transaction Overview

Identifies the buyer and seller, describes the target business (including legal entity name, primary trade names, and operating locations), and specifies whether the transaction is structured as an asset purchase or equity purchase. The vast majority of hardscape acquisitions close as asset purchases to allow buyers to cherry-pick contracts, equipment, and goodwill while leaving behind unknown liabilities such as unresolved warranty claims or subcontractor disputes.

💡 Confirm whether the seller operates under multiple trade names or holds assets across multiple entities — common when owners have separated equipment holdings into a separate LLC. Both entities may need to be party to the LOI. Clarify upfront whether real property (yard, storage, or office) is included or will be subject to a separate lease arrangement post-close.

Purchase Price and Valuation Basis

States the proposed total enterprise value and explains the valuation methodology. Hardscape businesses in the lower middle market typically trade at 2.5x–4.5x adjusted EBITDA. The LOI should anchor the price to a specific trailing twelve-month or trailing three-year average EBITDA figure and define what adjustments (owner compensation normalization, one-time expenses, vehicle and equipment add-backs) are included in the calculation.

💡 Sellers often inflate EBITDA by excluding legitimate recurring costs such as equipment repair, owner vehicle use, or subcontractor labor. Buyers should define the normalization methodology in the LOI rather than leaving it open. For businesses with strong 2023–2024 backlogs inflated by post-pandemic demand, consider whether to use a three-year average EBITDA rather than the most recent year to reflect sustainable earnings.

Deal Structure and Sources of Funds

Describes how the purchase price will be funded, including any SBA 7(a) loan, buyer equity injection, seller note, and earnout components. SBA financing is widely available for hardscape acquisitions and typically requires 10–15% buyer equity with the remainder financed over 10 years. Seller notes of 5–10% of the purchase price are common and help satisfy lender standby requirements.

💡 SBA lenders will scrutinize seasonal cash flow patterns in hardscape businesses. Be prepared to show the lender how debt service coverage holds up during Q1 and Q4 low-revenue months. Some lenders require a debt service reserve account funded at close to cover 3–6 months of principal and interest. Factor this into your equity injection calculation and communicate it to the seller so they understand SBA-driven closing timelines.

Earnout Provisions

Defines any variable or contingent consideration tied to post-close business performance. In hardscape acquisitions, earnouts are most commonly structured around backlog conversion (signed contracts not yet completed at close) or first-season gross revenue targets. They protect buyers against overpaying for a pipeline that does not materialize while giving sellers upside if their represented performance holds.

💡 Sellers will push back on earnouts tied to buyer-controlled variables. Protect the seller by agreeing not to change pricing strategy or reduce sales headcount during the earnout window. Buyers should require that the backlog schedule (Exhibit A) be finalized and signed at closing with project names, contract values, and estimated margin — not a verbal estimate from the owner. Disputes over earnout math are among the most common sources of post-close litigation in project-based businesses.

Assets Included and Excluded

Enumerates the specific categories of assets transferring to the buyer, including equipment, vehicles, tools, customer contracts, supplier relationships, intellectual property, trade names, website and social media accounts, warranty files, and work-in-progress. It also explicitly excludes assets the seller retains such as personal vehicles, cash balances, and receivables from completed projects (unless negotiated otherwise).

💡 The treatment of accounts receivable is frequently negotiated in hardscape deals. Sellers prefer to retain pre-close AR, while buyers may argue that collecting it requires ongoing customer relationships and should transfer with a discount. Clarify who is responsible for honoring warranty claims on projects completed in the 12 months prior to closing — this is a common source of post-close disputes and should be addressed with a warranty escrow or seller indemnification provision.

Working Capital and Net Asset Adjustment

Establishes a working capital target or floor to ensure the business is delivered with sufficient liquidity to operate through the first billing cycle. Hardscape businesses may have material pre-season deposits, supplier prepayments, or deferred material costs that affect working capital meaningfully depending on closing date.

💡 In seasonal hardscape businesses, the working capital target should be set relative to the time of year the deal closes. Closing in February (pre-season) means the business may carry significant supplier deposits and signed contracts but low cash — be specific about which items are included in the current assets definition. Exclude customer deposits from liabilities if those projects are being transferred to buyer and buyer will bear the cost of completion.

Due Diligence Period and Access

Specifies the length of the due diligence period, the categories of information the buyer will review, and the access the seller must provide. For hardscape businesses, due diligence should include job-level cost records, equipment inspections, supplier account verification, licensing review, and key employee interviews.

💡 Many hardscape seller-operators do not have formal job costing systems. If the seller uses QuickBooks or a project management platform like Buildertrend or CoConstruct, request a live walkthrough of project-level profitability reporting. If job costing is informal or spreadsheet-based, plan to spend additional time reconstructing margins by project type (patio installs vs. retaining walls vs. fire pits) since blended margins can mask unprofitable service lines.

Exclusivity and No-Shop Period

Grants the buyer an exclusive negotiating period during which the seller agrees not to solicit or entertain other offers. This protects the buyer's investment in due diligence and legal fees and is standard in lower middle market transactions.

💡 Sellers who are actively marketed through a broker may resist long exclusivity windows. A 45–60 day window is standard for lower middle market deals. Consider tying an extension option to a buyer milestone such as delivery of a formal term sheet or SBA lender engagement letter, which demonstrates deal seriousness and justifies continued exclusivity.

Transition and Seller Involvement

Outlines the seller's post-close role, compensation, and duration of involvement. In hardscape businesses where the owner is the primary estimator, salesperson, and client relationship holder, a structured transition period is critical for deal success and often required by SBA lenders.

💡 For SBA 7(a) transactions, lenders typically require the seller to remain involved for at least 12 months in some capacity. If the seller wants to step away entirely, consider whether the existing foreman or project manager can absorb the operational role — and if so, confirm their retention with a written retention agreement or bonus tied to staying through the first season. An owner who is eager to exit quickly is a risk flag that should prompt deeper diligence on customer and employee dependency.

Confidentiality and Non-Compete

Addresses seller confidentiality obligations during the LOI period and post-close non-compete and non-solicitation covenants. Non-competes in hardscape are typically 3–5 years and geographically limited to the seller's operating radius.

💡 Non-compete enforceability varies by state — California, for example, has strict limitations on enforcement. Confirm your state's standards before drafting. For SBA loans, lenders require a non-compete from all individuals with 20% or more ownership. Sellers should expect the non-compete to be allocated a specific dollar value in the purchase price allocation (IRS Form 8594) which has amortization implications for both parties.

Conditions to Closing

Lists the material conditions that must be satisfied before the transaction can close, including financing approval, satisfactory due diligence, required license transfers, landlord consents, and employee retention agreements with key personnel.

💡 License transfer timelines vary significantly by state and municipality — some contractor licenses can be transferred within days while others require new applications and testing that take 60–90 days. Research your state's requirements before setting a closing timeline. A deal that closes before licenses are in the buyer's name creates legal exposure for the first season of operations and can jeopardize SBA loan disbursement.

Binding and Non-Binding Provisions

Clarifies which sections of the LOI are legally binding (confidentiality, exclusivity, governing law, and expense allocation) versus non-binding (purchase price, deal structure, and all other economic terms that are subject to definitive agreement). This distinction protects both parties while keeping deal momentum.

💡 Do not skip the binding versus non-binding distinction — sellers who believe the LOI locks in the price will be difficult to negotiate with if due diligence reveals margin problems or equipment issues. Make clear that price is subject to due diligence verification. At the same time, buyers who treat the entire LOI as advisory and renegotiate aggressively after exclusivity is granted damage trust and often lose deals.