A field-ready LOI framework built for P&C and commercial lines agency acquisitions — covering purchase price, book retention earnouts, carrier assignment contingencies, and key-person transition provisions.
An LOI is the critical document that moves an insurance agency acquisition from exploratory conversation to structured negotiation. For agency deals, it must address issues that generic business LOIs miss entirely: carrier appointment transferability, contingency income treatment, retention-based earnout thresholds, and producer non-solicit provisions. Whether you are a PE-backed aggregator executing a tuck-in strategy or an individual buyer using SBA 7(a) financing, a well-drafted LOI signals deal sophistication, builds seller confidence, and creates a clear path to closing. Insurance agency deals typically close in 12–18 months, and the LOI sets the tone for every diligence and negotiation interaction that follows. This guide walks through each section of a market-standard LOI for agencies generating $1M–$5M in revenue, with example language calibrated to the 4x–7x EBITDA multiples common in today's independent agency M&A market.
Find Insurance Agency Businesses to AcquireParties and Transaction Overview
Identifies the buyer entity, seller entity, and the general structure of the proposed transaction — typically an asset purchase of the insurance book of business, agency management system data, carrier appointments, trade name, and associated tangible assets.
Example Language
This Letter of Intent ('LOI') is submitted by [Buyer Name or Buyer Entity] ('Buyer') to [Agency Name, LLC/Inc.] and its principal owner(s) [Seller Name(s)] ('Seller') regarding Buyer's interest in acquiring substantially all assets of [Agency Name] (the 'Agency'), including but not limited to the book of business, carrier appointments, agency management system data, client files, trade name, phone numbers, and all associated renewal rights (collectively, the 'Assets'). The transaction is proposed as an asset purchase. Excluded assets include [cash on hand, receivables predating close, personal vehicles, etc.] unless otherwise agreed.
💡 Asset purchases are strongly preferred by buyers for liability protection — particularly given E&O exposure. Sellers may push for a stock sale for tax efficiency. Clarify early whether the seller's entity will be acquired or just its assets. In PE-backed roll-up deals, equity rollovers into the acquiring platform are common and should be noted here if applicable.
Purchase Price and Valuation Basis
States the proposed total consideration, the EBITDA or revenue multiple used to derive it, and how contingency income, one-time revenue items, and owner add-backs were treated in the calculation.
Example Language
Buyer proposes a total purchase price of approximately $[X,XXX,000] ('Purchase Price'), representing a multiple of approximately [5.0x–6.0x] trailing twelve-month adjusted EBITDA of $[XXX,000], as calculated from Seller's financial statements for the period ending [Date]. Adjusted EBITDA excludes owner compensation above $[150,000] market-rate replacement cost, personal expenses run through the business, and one-time items. Contingency and profit-sharing income from carriers has been normalized based on the trailing three-year average of $[XX,000] per year. The final Purchase Price is subject to adjustment following completion of financial and operational due diligence.
💡 Contingency income is a common valuation battleground. Sellers want it fully capitalized; buyers often apply a lower multiple or exclude it due to variability. Agree upfront on whether contingency income is included in EBITDA at full value, a three-year average, or excluded entirely. Also confirm whether the multiple applies to gross commission revenue or EBITDA — some smaller deals are priced at 1.5x–2.5x annual commissions rather than an EBITDA multiple.
Deal Structure and Payment Terms
Outlines how the Purchase Price will be funded — including cash at close, seller note, earnout, and any equity rollover — and the approximate allocation across each component.
Example Language
The Purchase Price shall be payable as follows: (i) $[X,XXX,000] in cash at closing, funded through a combination of Buyer equity and an SBA 7(a) loan; (ii) a seller note of $[XXX,000] bearing interest at [6.0%] per annum, payable over [24] months following close, subordinated to senior SBA debt; and (iii) an earnout of up to $[XXX,000] payable over [24] months post-close, contingent on the Agency's book achieving a minimum policy retention rate of [85%] as measured against the trailing 12-month in-force premium at closing. The seller note and earnout together represent approximately [20–25%] of total consideration.
💡 SBA 7(a) loans require seller notes to be on full standby for 24 months post-close, meaning no principal or interest payments during that period. Confirm SBA eligibility early — most independent P&C agencies qualify. Earnout thresholds of 85%+ retention are market standard; sellers with documented 90%+ retention rates should negotiate for a reduced earnout holdback or a shorter measurement window.
Retention-Based Earnout Mechanics
Defines how policy retention will be measured post-close, which policies are included in the base, and how earnout payments are calculated relative to retention performance.
Example Language
The earnout shall be calculated based on in-force premium retention as of the twelve (12) month anniversary of closing ('Retention Date'). 'Base Premium' shall mean the total annualized in-force premium across all lines of business as of the Closing Date, excluding any accounts that lapsed, cancelled, or non-renewed within 60 days prior to closing. If retention on the Retention Date equals or exceeds 90% of Base Premium, Buyer shall pay 100% of the earnout ($[XXX,000]). If retention is between 85% and 89.9%, Buyer shall pay a pro-rata portion. If retention falls below 85%, no earnout shall be payable. Lost accounts attributable to carrier non-renewal, market-wide rate increases exceeding 25%, or catastrophe-related cancellations shall be excluded from the retention calculation.
💡 Sellers should push to carve out retention losses caused by carrier-side actions (non-renewals, capacity withdrawals) or macro pricing events outside their control. Buyers should ensure the retention calculation is based on premium volume, not policy count, as losing one large commercial account disproportionately impacts revenue. Both parties should agree on who administers the measurement and the dispute resolution process before signing.
Carrier Appointment Transferability Contingency
Establishes that the transaction is contingent on obtaining written consent from key carriers to assign or transfer appointment agreements to the buyer entity, and defines a timeline and fallback process.
Example Language
Closing is contingent upon Buyer receiving written consent from carriers representing no less than [80%] of the Agency's total in-force premium volume ('Key Carrier Consent') to transfer or re-appoint Buyer under substantially similar appointment terms. Seller shall cooperate fully in submitting carrier consent-to-assign requests within [10] business days of LOI execution. If Key Carrier Consent is not obtained within [60] days of LOI execution, either party may terminate this LOI without liability. Buyer acknowledges that certain personal lines carriers may require re-appointment rather than assignment and agrees to pursue appointment with such carriers promptly following LOI execution.
💡 Carrier consent is the most common deal-killer in insurance agency acquisitions. Start the consent process the moment the LOI is signed — do not wait for final due diligence to be complete. Some carriers (particularly personal lines incumbents) will not assign appointments and require fresh applications. PE platforms with existing carrier relationships have a significant advantage here. Buyers should review every appointment agreement for change-of-control provisions before LOI execution.
Due Diligence Period and Access
Specifies the length of the due diligence period, the categories of information Buyer will review, and the process for accessing agency management system data, financial records, and carrier agreements.
Example Language
Buyer shall have [45–60] calendar days from the date of full execution of this LOI (the 'Due Diligence Period') to conduct a comprehensive review of the Agency, including but not limited to: (i) three years of financial statements, tax returns, and commission income reports; (ii) a full book-of-business export from [Agency Management System Name] including policy counts, premiums, lines, and carrier data; (iii) all carrier appointment agreements, contingency income statements, and bonus program documentation; (iv) top 25 client revenue analysis and concentration report; (v) producer/agent employment agreements and non-competes; and (vi) E&O policy, claims history for the past five years, and licensing compliance records. Seller shall provide access to all requested materials within [10] business days of LOI execution.
💡 Request a full AMS data export — not just a summary — so you can analyze lapse rates, retention by line, and client tenure independently. Sellers uncomfortable sharing raw data may offer a third-party audit instead. Push back: incomplete diligence on book quality is the leading cause of post-close surprises in agency acquisitions. Also request the trailing three years of contingency income statements directly from each carrier, not just the seller's internal records.
Exclusivity and No-Shop Provision
Grants the buyer an exclusive negotiating period during which the seller agrees not to solicit, negotiate, or accept competing offers for the agency.
Example Language
In consideration of Buyer's commitment of time and resources to due diligence, Seller agrees that for a period of [60] calendar days from the date of full LOI execution (the 'Exclusivity Period'), Seller shall not, directly or indirectly, solicit, negotiate, discuss, or enter into any agreement with any third party regarding the sale, transfer, merger, or recapitalization of the Agency or its assets. Seller shall immediately notify Buyer of any unsolicited inquiries received during the Exclusivity Period. The Exclusivity Period may be extended by mutual written agreement if due diligence is ongoing and both parties are making good-faith progress toward definitive documentation.
💡 60 days is standard for agency deals given carrier consent timelines. Sellers with strong books and multiple interested buyers may resist exclusivity or request it be limited to 30 days. Buyers can offer a modest exclusivity deposit ($10,000–$25,000, credited toward the purchase price at close) to secure the seller's commitment. This is especially important in active M&A markets where PE aggregators are competing for quality books.
Key-Person Transition and Employment Terms
Outlines the seller's expected post-close role, the duration of any transition consulting arrangement, and the framework for retaining key producers and licensed staff.
Example Language
Seller agrees to remain actively involved in the Agency for a transition period of [12–24] months post-close in a consulting or employee capacity at a mutually agreed compensation of $[XX,000] per year. During this period, Seller shall introduce Buyer to all significant client relationships, assist in carrier re-appointment processes, and support the integration of the Agency into Buyer's operations. Additionally, all licensed producers and account managers currently employed by the Agency are expected to receive employment offers from Buyer on substantially similar terms. Retention of [X] key staff members identified in Exhibit A is a condition of Closing.
💡 The single greatest post-close risk in an agency acquisition is client attrition driven by the departing founder. Tie the transition period length to the complexity of the commercial book — personal lines clients are stickier; large commercial accounts often follow the relationship. Consider structuring the earnout so the seller has financial incentive to actively retain clients during the measurement period. Retention of at least 2–3 senior licensed staff as a closing condition provides meaningful downside protection.
Non-Compete and Non-Solicit Provisions
Establishes the geographic scope and duration of the seller's non-competition and non-solicitation obligations post-close, including restrictions on soliciting clients, carriers, and employees.
Example Language
For a period of [3–5] years following the Closing Date, Seller shall not, directly or indirectly: (i) own, operate, manage, or provide services to any independent insurance agency or brokerage within [50] miles of the Agency's primary place of business; (ii) solicit, service, or accept business from any client of the Agency as of the Closing Date; (iii) solicit or hire any employee of the Agency for a period of [2] years post-close; or (iv) solicit or establish a new appointment with any carrier from whom the Agency derives more than [5%] of its commission revenue, for competitive purposes. These restrictions shall be enforceable to the maximum extent permitted under applicable state law.
💡 Non-compete enforceability varies significantly by state — California-based sellers may push back hard given state restrictions on enforcement. In that case, focus on robust non-solicitation provisions tied to specific named clients and carriers, which are more broadly enforceable. For SBA-financed deals, the SBA requires non-competes from all owners with 20%+ equity stakes. Sellers who plan to retire should accept 5-year terms; those transitioning to a corporate role within the buyer's platform may negotiate narrower restrictions.
Representations and Warranties Framework
Summarizes the categories of representations and warranties Seller will be expected to make in the definitive purchase agreement, and notes whether rep and warranty insurance will be pursued.
Example Language
The definitive Asset Purchase Agreement shall include Seller representations and warranties covering, at minimum: (i) accuracy of financial statements and commission income reports; (ii) completeness and currency of carrier appointment agreements; (iii) no undisclosed E&O claims, regulatory violations, or carrier performance improvement plans; (iv) accuracy of the book-of-business data provided during due diligence; (v) all staff are properly licensed in applicable states; (vi) no material adverse change in the book of business between LOI execution and Closing; and (vii) Seller has full authority to transfer all Assets free of liens or encumbrances. Survival period for representations shall be [18–24] months post-close. Buyer [intends / does not intend] to pursue rep and warranty insurance for this transaction.
💡 E&O representations are non-negotiable — insist on a full five-year claims disclosure and confirm there are no open matters. For deals over $2M in purchase price, rep and warranty insurance is increasingly viable and can reduce the seller's indemnification exposure while giving the buyer recourse. Sellers should be prepared to escrow 5–10% of the purchase price for 12–18 months to backstop indemnification obligations if R&W insurance is not used.
Conditions to Closing
Lists the specific conditions that must be satisfied before either party is obligated to close, including financing, regulatory, carrier, and staffing conditions.
Example Language
Closing shall be conditioned upon, among other things: (i) Buyer obtaining SBA 7(a) loan commitment or alternative financing sufficient to fund the cash-at-close component; (ii) receipt of Key Carrier Consent as defined herein; (iii) execution of employment or consulting agreements with [Seller Name] and identified key staff; (iv) no material adverse change in the Agency's book of business (defined as a loss of more than [10%] of in-force premium) between LOI execution and Closing; (v) satisfactory completion of due diligence in Buyer's sole discretion; (vi) execution of definitive Asset Purchase Agreement and all ancillary documents; and (vii) receipt of all required state insurance department notifications or approvals.
💡 SBA financing timelines typically run 60–90 days from loan application to closing — build this into your overall deal timeline. The 'no material adverse change' condition protects buyers if a large commercial account departs before closing, which is a real risk once word of a potential sale leaks. Sellers should push for a tight definition of 'material adverse change' to avoid buyers using it as a termination escape hatch over minor book fluctuations.
Confidentiality and Binding Effect
Confirms that the LOI is non-binding except for specified provisions (exclusivity, confidentiality, expense allocation), and that both parties commit to good-faith negotiation of definitive documentation.
Example Language
This LOI constitutes a non-binding expression of intent, except that the provisions relating to Exclusivity (Section [X]), Confidentiality (Section [X]), and Governing Law (Section [X]) shall be legally binding and enforceable. Neither party shall be obligated to consummate the Transaction unless and until a definitive Asset Purchase Agreement has been fully executed. Each party shall bear its own legal, accounting, and advisory fees in connection with this LOI and due diligence, unless otherwise agreed. Both parties agree to negotiate in good faith toward execution of a definitive agreement within [30] days of completion of due diligence.
💡 Make the confidentiality provision explicit and bilateral — sellers are sharing sensitive client and carrier data, while buyers may be sharing financing details and acquisition strategy. Reference any existing NDA executed prior to the LOI and confirm it remains in full force. Clearly list which sections are binding to avoid future disputes about whether either party had enforceable obligations under the LOI alone.
Contingency Income Treatment in EBITDA
Carrier contingency and profit-sharing bonuses can represent 5–15% of an agency's total revenue but are highly variable year to year. Buyers should insist on using a trailing three-year average of contingency income in EBITDA calculations rather than the most recent peak year. Sellers should advocate for full inclusion if their contingency history is consistent and tied to documented performance metrics. The agreed approach must be explicitly stated in the LOI to prevent renegotiation during final purchase price discussions.
Retention Earnout Threshold and Carve-Outs
The standard market threshold for full earnout payment is 85–90% policy retention, measured by in-force premium at the one-year post-close anniversary. Sellers must negotiate meaningful carve-outs for losses caused by carrier non-renewals, market-driven rate increases causing client departures, or catastrophe-related cancellations — all of which are outside the seller's control. Without these carve-outs, a single carrier pulling capacity from a geographic market can unfairly eliminate the seller's earnout.
Carrier Consent Timeline and Deal Termination Rights
Most LOIs give 45–60 days for carrier consent, but some carriers — particularly admitted personal lines carriers — can take 90+ days to process assignment requests. Negotiate a clear extension mechanism rather than a hard termination right at day 60. Define which carriers are 'Key Carriers' (typically those representing more than 5% of in-force premium individually, or 80% cumulatively) so that consent from smaller carriers does not become a blocking condition for closing.
Seller Transition Period Compensation and Incentive Alignment
A seller who retains clients during the earnout window should be compensated in a way that aligns their incentive with yours. Consider structuring the transition consulting fee on a declining basis (higher in months 1–6, lower in months 7–12) to motivate proactive client introductions early in the transition. If the seller is also receiving an earnout tied to retention, their economic interests are already partially aligned — avoid double-compensating for the same activity.
Non-Compete Geographic Scope and Carrier Restrictions
A non-compete limited to the county or metro area where the agency operates is standard and enforceable in most states. The more critical restriction for insurance agency deals is the carrier non-solicit — preventing the seller from establishing new appointments with the agency's existing carriers for competitive purposes. This is especially important in markets where the seller has deep relationships with carrier underwriters that could be leveraged to place business through a competing entity. Negotiate carrier non-solicit provisions separately from geographic non-competes.
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Most independent P&C and commercial lines agencies are valued on an EBITDA multiple basis, with lower middle market agencies trading between 4x and 7x trailing twelve-month adjusted EBITDA. Some smaller agencies — particularly those under $500K in revenue — are still priced at 1.5x–2.5x annual gross commissions. The LOI should explicitly state the multiple applied, the EBITDA or revenue base used, and how contingency income and owner compensation were normalized. For agencies with strong commercial lines books, documented 90%+ retention, and diversified carrier relationships, buyers should expect to pay at the higher end of the multiple range.
Carrier appointment transferability must be addressed in the LOI, not deferred to the purchase agreement. Making Key Carrier Consent a defined closing condition in the LOI protects both parties — buyers are not obligated to close if critical appointments cannot transfer, and sellers understand upfront that the process of obtaining carrier consent needs to begin immediately after LOI signing. Waiting until the definitive agreement stage to address carrier consent routinely causes 30–60 day delays and sometimes causes deals to collapse after significant legal fees have been incurred.
Yes — independent insurance agencies are one of the most SBA-eligible business types in the lower middle market. The recurring commission revenue model, asset-light balance sheet, and strong cash flow characteristics make agency acquisitions attractive to SBA lenders. SBA 7(a) loans can fund up to 90% of the purchase price, with the seller typically providing a 10% note on standby. Buyers should note that the SBA requires a seller note to be on full payment standby for 24 months post-close, which affects how the seller note is structured in the LOI. Engaging an SBA-experienced lender before signing the LOI is strongly recommended.
The most market-standard earnout structure ties a portion of the purchase price — typically 10–20% — to book retention at the 12-month post-close anniversary. Retention is measured as a percentage of in-force premium, not policy count. Full earnout payment triggers at 90% or higher retention; partial payment on a sliding scale down to 85%; no payment below 85%. Sellers should negotiate firm carve-outs for losses caused by carrier non-renewals, market hardening driving clients to direct writers, or catastrophe events. Buyers should ensure the seller remains actively involved in client relationships during the earnout measurement period, ideally through a transition consulting agreement with compensation tied to the outcome.
In an asset purchase, the buyer acquires specific assets — the book of business, carrier appointments, trade name, AMS data, and renewal rights — without assuming the seller entity's liabilities. This is the standard structure for independent agency acquisitions because it protects buyers from undisclosed E&O claims, prior regulatory violations, or employment liabilities tied to the selling entity. In a stock purchase, the buyer acquires the seller's legal entity and assumes all historical liabilities. Stock purchases are sometimes requested by sellers for tax efficiency (capital gains treatment on all proceeds) but are generally avoided by institutional buyers and SBA lenders. If a seller insists on a stock deal, buyers should negotiate a substantial escrow and robust R&W insurance as backstops.
Most independent agency transactions close within 90–120 days of LOI execution, though deals involving SBA financing or complex carrier consent requirements can take up to 180 days. The critical path items are typically: (1) carrier consent processing, which can take 45–90 days for major admitted carriers; (2) SBA lender underwriting, which runs 60–90 days from application; and (3) due diligence on book quality, financials, and E&O history, which typically takes 30–45 days. Buyers who begin the carrier consent process and engage their SBA lender simultaneously with LOI execution — rather than sequentially — significantly reduce total deal timeline.
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