Structure your heating and cooling company acquisition with an LOI built for HVAC-specific deal terms — covering maintenance contracts, technician retention, fleet condition, and SBA financing requirements.
A Letter of Intent (LOI) is the foundational document that defines the commercial terms of an HVAC business acquisition before formal due diligence and legal drafting begin. For HVAC transactions in the $1M–$5M revenue range, a well-crafted LOI does more than state a purchase price — it establishes how recurring maintenance contract revenue will be verified, how technician and licensing risks will be allocated, how fleet condition will be assessed, and whether seller financing or an earnout will be tied to post-close customer retention. HVAC businesses trade at 3x–5.5x SDE or EBITDA, and the gap between those multiples is almost always determined by how clearly the buyer defines their assumptions in the LOI. Sellers who understand what buyers are evaluating — and buyers who document their assumptions before entering exclusivity — both benefit from a precise, HVAC-specific LOI rather than a generic template. This guide walks through each section of an HVAC acquisition LOI with example language, negotiation notes, and the key terms that most commonly require back-and-forth between parties.
Find HVAC Businesses to AcquireBuyer and Seller Identification
Identifies the legal entities or individuals entering the transaction, including the acquiring entity (often a newly formed LLC or holding company), the selling entity, and any personal guarantors or key principals. For HVAC businesses, it is common for the seller to be an individual owner-operator whose personal contractor license is material to the business.
Example Language
This Letter of Intent is entered into as of [Date] by and between [Buyer Entity Name], a [State] limited liability company ('Buyer'), and [Seller Legal Name], a [State] S-corporation ('Seller'), operating under the trade name [DBA Name] ('the Business'). The Business is a licensed HVAC contractor operating in [City, State], holding Contractor License No. [XXXXX] issued by the [State Contractor Licensing Board].
💡 If the seller holds the contractor license personally rather than through the business entity, flag this immediately. Buyers using SBA financing must ensure the license is transferable or that a licensed technician on staff can assume the qualifying license at close. This point should be addressed explicitly in the LOI rather than left to due diligence.
Transaction Structure
Defines whether the deal is structured as an asset purchase or stock purchase. The vast majority of HVAC acquisitions in the lower middle market are structured as asset purchases, allowing the buyer to step up the tax basis of equipment and vehicles and exclude unknown liabilities. This section also identifies which assets are included — typically service vehicles, tools, equipment, customer lists, maintenance agreements, trade name, and goodwill.
Example Language
The proposed transaction is structured as an asset purchase. Buyer intends to acquire substantially all assets of the Business, including but not limited to: all active maintenance service agreements and associated customer contracts; the trade name and telephone numbers; all service vehicles and field equipment as listed on the attached preliminary asset schedule; technician tools and inventory; customer records and CRM data; and all goodwill associated with the Business. Excluded assets include: cash and cash equivalents, accounts receivable generated prior to the closing date, and any personal vehicles not used in business operations.
💡 Sellers often prefer stock sales for tax efficiency, but buyers — especially SBA borrowers — almost always insist on asset purchases for liability protection. If the seller pushes for a stock deal, consider a modest purchase price adjustment to offset the buyer's additional tax exposure. Clearly enumerate excluded assets and confirm whether accounts receivable are being retained by the seller or purchased at a discount.
Purchase Price and Valuation Basis
States the proposed purchase price, the valuation methodology used, and the SDE or EBITDA figures the buyer is relying upon. For HVAC businesses, the purchase price should be explicitly tied to a verified level of trailing twelve-month or three-year average SDE, with clear language that the price is subject to adjustment based on due diligence findings.
Example Language
Buyer proposes a total purchase price of $[X,XXX,000] ('Purchase Price'), representing approximately [X.Xx] times the Business's Seller's Discretionary Earnings ('SDE') of $[XXX,000] as reported for the trailing twelve months ended [Date], as represented by Seller. The Purchase Price is contingent upon verification of SDE and the confirmed existence of no fewer than [50] active, written maintenance service agreements generating a minimum of $[X,000] in monthly recurring revenue. The Purchase Price is subject to adjustment upon completion of financial due diligence and quality of earnings review.
💡 HVAC businesses with strong recurring maintenance contract revenue justify multiples at the higher end of the 3x–5.5x range. Buyers should separate the value attributable to recurring maintenance revenue from break-fix and installation revenue, as the former warrants a premium. If the seller cannot produce signed, transferable maintenance contracts, the buyer should reduce the assumed multiple or shift value into an earnout tied to post-close contract retention.
Deal Structure and Financing
Outlines how the purchase price will be funded, including any SBA 7(a) loan, buyer equity injection, seller note, and earnout provisions. HVAC acquisitions are among the most SBA-eligible transactions in the trades sector, and most sub-$3M deals will involve an SBA 7(a) loan structure.
Example Language
The proposed financing structure is as follows: (i) SBA 7(a) loan proceeds of approximately $[X,XXX,000], representing [85%] of the Purchase Price; (ii) Buyer equity injection of $[XXX,000], representing [10%] of the Purchase Price; and (iii) a Seller Note of $[XXX,000], representing [5–10%] of the Purchase Price, payable over [36] months at [6%] interest per annum, subordinated to the SBA lender. The Seller Note shall be subject to a standby period of [24] months as required by SBA guidelines. The parties acknowledge that SBA financing approval is a condition precedent to closing.
💡 SBA lenders will typically require the seller note to be on full standby for 24 months. Sellers uncomfortable with this should negotiate for a shorter standby period or a higher cash-at-close component. For PE roll-up buyers transacting in all-cash, replace this section with a straightforward cash-at-close structure, which typically justifies a modest discount to asking price of 5–10%.
Earnout Provisions
Defines any portion of the purchase price that is contingent on post-close performance, most commonly tied to maintenance contract retention or revenue thresholds. Earnouts are common in HVAC acquisitions when the buyer cannot fully verify recurring revenue quality or when technician retention is uncertain.
Example Language
In addition to the base Purchase Price, Buyer agrees to pay Seller an earnout of up to $[XXX,000] ('Earnout') payable over [12] months following the Closing Date, calculated as follows: Seller shall receive $[X,000] per month for each month in which the Business retains no fewer than [XX] active maintenance service agreements that were active as of the Closing Date. The Earnout shall be reduced on a pro-rata basis for any decline below the baseline maintenance contract count of [XX] agreements, excluding contracts cancelled due to customer relocation or death. Earnout payments shall commence [90] days after the Closing Date.
💡 Tie earnout metrics to objective, verifiable data — maintenance contract counts pulled from the field service management software (e.g., ServiceTitan or Jobber) rather than seller representations. Avoid revenue-based earnouts for HVAC businesses because seasonal volatility can trigger disputes. Contract retention earnouts are cleaner, more seller-friendly, and easier to administer. Cap total earnout exposure at 10–15% of the purchase price.
Seller Transition and Non-Compete
Specifies the seller's obligations to train the buyer and transition customer and technician relationships post-close, as well as geographic and temporal restrictions on the seller competing in the HVAC market. This is particularly important in HVAC where the owner often has deep personal relationships with commercial property managers, general contractors, and repeat residential customers.
Example Language
Seller agrees to provide a transition assistance period of no less than [90] days following the Closing Date, during which Seller will introduce Buyer to key commercial accounts, assist in the re-execution of maintenance service agreements under the new ownership entity, and remain available for up to [20] hours per week for technician and operational support. Seller further agrees to a non-competition covenant restricting Seller from engaging in the HVAC installation, service, or maintenance business within a [30]-mile radius of [Primary Service Area City] for a period of [3] years following the Closing Date. The non-compete shall be supported by a mutually agreed consideration amount included within the purchase price allocation.
💡 SBA-required non-competes must be reasonable in scope and geography to be enforceable. A 30-mile radius for 3–5 years is standard for HVAC businesses in suburban and rural markets; urban markets may warrant a tighter geographic restriction. Ensure the transition period explicitly covers introductions to commercial property management contacts, which are among the hardest relationships for a new owner to replicate independently.
Due Diligence Period and Exclusivity
Establishes the length of the due diligence period, the information the seller must provide, and the exclusivity window during which the seller agrees not to solicit or entertain competing offers. For HVAC acquisitions, due diligence should include maintenance contract audits, technician licensing verification, fleet inspections, and a financial quality of earnings review.
Example Language
Upon execution of this LOI, Seller grants Buyer an exclusive due diligence period of [45] days ('Due Diligence Period'), during which Seller agrees not to solicit, negotiate, or accept any competing offer for the Business. During the Due Diligence Period, Seller shall provide Buyer with: (i) three years of federal tax returns and internally prepared financial statements; (ii) a complete list of all active maintenance service agreements including customer name, contract value, and renewal date; (iii) copies of all technician licenses, EPA 608 certifications, and NATE certifications; (iv) fleet titles, registration documents, and most recent service records for all vehicles; and (v) access to Seller's field service management software for historical revenue and customer data review.
💡 Forty-five days is typically sufficient for straightforward HVAC asset purchases; add 15 days if SBA financing is involved and the lender requires an independent business valuation or environmental review. Do not allow the exclusivity period to extend indefinitely — include a hard stop date to maintain deal momentum. If the seller is reluctant to provide maintenance contract details early in due diligence, treat this as a significant red flag.
Working Capital and Inventory Adjustments
Addresses how working capital will be defined and whether a normalized working capital target will be established at close. For HVAC businesses, working capital considerations include seasonal accounts receivable, parts and refrigerant inventory, and prepaid maintenance contract liabilities where the seller has collected cash for future service.
Example Language
The parties agree to negotiate in good faith a normalized working capital target ('NWC Target') based on the trailing twelve-month average working capital of the Business, defined as current assets (excluding cash) minus current liabilities (excluding seller debt to be retired at close). Buyer and Seller agree that prepaid maintenance contract liabilities — representing customer payments received for service not yet performed — shall be assumed by Buyer at Closing, with a corresponding credit to Buyer reducing the cash due at Closing. Parts and refrigerant inventory on hand at Closing shall be valued at cost and included in the asset purchase at no additional charge above the Purchase Price, provided total inventory value does not exceed $[XX,000].
💡 Prepaid maintenance contracts are a common source of closing disputes in HVAC deals. Sellers want credit for having collected cash; buyers want the corresponding liability offset. Resolve this explicitly in the LOI by confirming that Buyer assumes the service obligation and receives a cash-at-close credit equal to the unearned revenue balance. Refrigerant inventory — particularly legacy R-22 stock — should be valued carefully given regulatory phase-out impacts on resale value.
Conditions to Closing
Lists the material conditions that must be satisfied before the transaction can close, including financing approval, regulatory licensing transfer, and key employee retention. For HVAC businesses, conditions related to contractor license transfer and technician employment agreements are often as critical as financing approval.
Example Language
The obligation of Buyer to consummate the transaction is conditioned upon: (i) receipt of SBA 7(a) loan approval in an amount sufficient to fund the proposed financing structure; (ii) confirmation that all state and local contractor licenses held by the Business are transferable to Buyer or that a licensed qualifying agent employed by the Business is available to serve as the license holder post-close; (iii) execution of employment agreements with no fewer than [X] lead HVAC technicians holding current EPA 608 certifications as of the Closing Date; (iv) no material adverse change in the Business's maintenance contract count, revenues, or workforce between the LOI execution date and the Closing Date; and (v) receipt of all required third-party consents for the assignment of material customer contracts.
💡 The contractor license condition is non-negotiable for buyers who do not themselves hold an HVAC contractor license. Confirm with the applicable state licensing board whether the license can be transferred to the buyer's new entity or whether a designated licensed qualifier must be on staff. Technician employment agreements should be executed before close, not after — retaining key technicians is often more valuable than retaining any single customer account.
Confidentiality and No-Shop
Confirms both parties' obligations to keep deal terms and business information confidential, and restricts the seller from shopping the deal to other potential buyers during the exclusivity period. This section is especially important in HVAC markets where competitors and employees are often closely connected.
Example Language
Both parties agree to maintain strict confidentiality regarding the existence of this LOI, the proposed transaction terms, and all non-public business information exchanged during the due diligence process. Seller agrees that disclosure of the transaction to employees, customers, or competitors prior to the Closing Date could cause material harm to the Business and agrees to limit awareness of the transaction to key management personnel on a need-to-know basis. Seller agrees not to solicit, discuss, or negotiate any alternative acquisition, merger, or sale transaction with any third party during the Exclusivity Period defined above.
💡 Technician departures triggered by premature deal disclosure are one of the most common causes of HVAC deal failure. Keep the transaction confidential from field staff until a closing date is confirmed and a retention plan is in place. If the seller insists on informing key technicians before close, negotiate a retention bonus structure funded at close to reduce departure risk.
Maintenance Contract Count and Revenue Quality
The number of active, written maintenance service agreements and their monthly recurring value is the single most important valuation driver in an HVAC acquisition. Negotiate a specific minimum contract count as a closing condition (e.g., 50+ active agreements) and build in a purchase price adjustment mechanism if the verified count falls below the seller's representation. Require copies of signed contracts, not just a spreadsheet summary.
Purchase Price Multiple and SDE Normalization
HVAC businesses trade at 3x–5.5x SDE, and the normalization of add-backs — owner salary, personal vehicles, health insurance, family payroll — directly determines the multiple base. Negotiate which add-backs are legitimate and which reflect true operating costs that a replacement operator would incur. Owner-operators who function as lead technicians require a replacement labor cost add-back that many sellers resist.
Fleet Condition and Capital Expenditure Reserve
Service vehicles are both a core operational asset and a significant liability if deferred. Negotiate a pre-close fleet inspection by a qualified mechanic, and establish a capital expenditure reserve or purchase price credit for any vehicle requiring repair or replacement within 12 months of closing. Clearly document which vehicles are included in the asset purchase and their condition at the time of the LOI.
Seller Note Terms and Standby Period
If a seller note is included in the deal structure, negotiate the interest rate (typically 5–8%), amortization period (3–5 years), and standby requirements imposed by the SBA lender. Sellers should push for a shorter standby period or personal guarantee from the buyer. Buyers should negotiate for a right of offset against the seller note if post-close indemnification claims arise, particularly related to undisclosed liabilities or misrepresented contract counts.
Earnout Metric and Measurement Period
If an earnout is included, the metric should be objective, tamper-resistant, and tied to data the buyer controls post-close. Maintenance contract retention counts pulled from field service management software are preferable to revenue-based metrics. Negotiate the measurement frequency (monthly vs. quarterly), the baseline contract count at close, and the maximum earnout payment to cap the seller's upside and the buyer's exposure.
Non-Compete Geography and Duration
The geographic scope of the seller's non-compete must be wide enough to protect the buyer's customer base but reasonable enough to be enforceable under state law. In HVAC, a 25–35 mile radius around the primary service area for 3–5 years is standard. If the seller has strong relationships with commercial property management companies that operate regionally, consider expanding the geographic restriction or adding a non-solicitation clause that covers specific named accounts.
Technician Retention and Employment Conditions
Negotiate the number of licensed technicians who must execute employment agreements as a condition to close. Specify minimum certification requirements (EPA 608 universal certification at minimum, NATE preferred) and include a retention bonus mechanism funded at close to incentivize key technicians to remain through the first 12 months under new ownership. Identify any technicians who are family members of the seller and assess their post-close commitment independently.
Accounts Receivable Treatment
In an asset purchase, accounts receivable are typically retained by the seller. Negotiate whether any overdue commercial AR will be collected by the buyer on the seller's behalf (with a collection fee) or excluded entirely. Confirm that no single commercial account represents more than 15–20% of outstanding receivables, and establish a clear cutoff date so that post-close invoices are unambiguously the buyer's property.
Find HVAC Businesses to Acquire
Enough information to write a strong LOI on day one — free to join.
HVAC businesses in the $1M–$5M revenue range typically trade at 3x–5.5x SDE or EBITDA. Use the lower end of that range (3x–3.75x) for businesses with primarily break-fix revenue, minimal maintenance contracts, or heavy owner-operator dependency. Reserve the upper end (4.5x–5.5x) for businesses with 50+ active maintenance service agreements, tenured licensed technicians independent of the owner, and clean financials. In your LOI, explicitly state the SDE figure you are relying upon and that the multiple is subject to verification during due diligence.
In the vast majority of HVAC lower middle market deals, buyers structure the transaction as an asset purchase. This allows the buyer to step up the tax basis of equipment and vehicles, exclude unknown liabilities, and start fresh with a new entity holding the contractor license. Stock purchases are rare and generally only considered when the target holds licenses or contracts that are not assignable to a new entity. If you are using SBA financing, your lender will almost certainly require an asset purchase structure.
This is one of the most critical issues in any HVAC acquisition. Address it explicitly in the LOI by making license continuity a closing condition. If the seller holds the contractor license personally, you have three options: (1) identify a licensed technician on staff who can serve as the qualifying agent for the new entity; (2) have the buyer obtain their own contractor license before close; or (3) structure a longer transition period during which the seller remains nominally attached to the license. Do not assume this will resolve itself in due diligence — flag it in the LOI.
Earnouts make sense in HVAC acquisitions when the seller is claiming significant recurring revenue from maintenance contracts but the buyer cannot fully verify contract quality or renewal rates before signing. Structure the earnout around maintenance contract retention count — not total revenue — measured monthly using data from the field service management software. Cap the earnout at 10–15% of the total purchase price and limit the measurement period to 12 months post-close. Avoid open-ended earnouts or metrics the seller can influence post-close.
Prioritize the following HVAC-specific items in your first due diligence request: (1) a complete list of active maintenance service agreements with customer name, annual value, and contract start/renewal date; (2) three years of federal tax returns and any accountant-prepared financials with owner add-backs itemized; (3) copies of all technician licenses and EPA 608 certifications with expiration dates; (4) fleet titles and most recent service records for all vehicles included in the asset purchase; and (5) read-only access to the field service management software to review historical dispatch records, customer data, and revenue patterns.
For a straightforward HVAC asset purchase with clean financials and a cooperative seller, 45 days is typically sufficient to complete financial due diligence, contract audits, fleet inspection, and SBA lender underwriting. If the deal involves a quality of earnings report, a complex commercial customer base, or multiple jurisdictions with separate licensing requirements, request 60 days. Avoid open-ended exclusivity — set a hard expiration date and include a mutual option to extend by 15 days if both parties agree in writing.
Include a material adverse change clause in your LOI that specifically covers a decline in active maintenance contract count exceeding [10–15%] between the LOI execution date and the Closing Date. This gives the buyer the right to renegotiate the purchase price or terminate the agreement without forfeiting any deposit. This is particularly important in HVAC transactions where a seasonal lull or early disclosure to employees could trigger customer cancellations before the deal closes.
Yes — HVAC businesses are among the most SBA 7(a)-eligible acquisition targets in the trades sector due to their established cash flow, tangible asset base, and service contract revenue. In your LOI, explicitly state that SBA financing approval is a condition precedent to closing, define the approximate loan amount and buyer equity injection, and confirm that any seller note will be subordinated and placed on standby as required by SBA guidelines. Also confirm that the business has been operating for at least 2 years and that the seller will cooperate with SBA lender requests for documentation, including the business tax returns and any real estate lease assignments.
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