A practical, deal-tested LOI framework tailored to jan-san distributor acquisitions — covering purchase price, working capital pegs, supplier agreement contingencies, customer concentration protections, and SBA financing alignment in the $1M–$5M revenue range.
In a janitorial supply distributor acquisition, the Letter of Intent (LOI) is the most consequential document you will sign before closing. It locks in the economic framework — purchase price, deal structure, and exclusivity — before your attorney drafts the definitive Asset Purchase Agreement. For jan-san deals, the LOI must go beyond boilerplate and directly address the industry-specific risks that drive valuation and deal risk: customer concentration in commercial accounts, transferability of supplier relationships and rebate programs, the condition and valuation method for on-hand inventory, and the degree to which owner-managed sales relationships create key-person dependency. Buyers financing with an SBA 7(a) loan must also ensure the LOI structure aligns with lender requirements on equity injection, seller note standby periods, and earnout limitations. This guide walks through each section of a well-constructed LOI for a janitorial supply distribution business, provides realistic example language, and flags the negotiation points where deals most commonly stall or fall apart.
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Identifies the buyer entity, the seller, and the business being acquired. Specifies whether the transaction is structured as an asset purchase or stock purchase — critical for jan-san deals where buyers typically want to exclude unknown liabilities and selectively assume supplier contracts.
Example Language
This Letter of Intent is entered into by [Buyer Entity Name] ('Buyer') and [Seller Legal Name] ('Seller') regarding the proposed acquisition of substantially all of the assets of [Business Name], a janitorial and sanitation supply distribution business operating in [Region/State] ('the Company'). The proposed transaction is structured as an asset purchase, with Buyer acquiring all operating assets including customer accounts, supplier agreements, inventory, delivery vehicles, warehouse equipment, trade names, and goodwill, excluding cash, accounts payable incurred prior to closing, and liabilities not expressly assumed.
💡 Asset purchase is strongly preferred by buyers in jan-san deals to avoid assuming unknown payables to suppliers or exposure to prior sales tax obligations on B2B product sales. Sellers may push for a stock sale to achieve capital gains tax treatment — if the seller insists, engage your CPA to model the tax impact and adjust the purchase price accordingly. Confirm early whether the seller operates as an S-Corp, LLC, or C-Corp, as this affects deal structure options and SBA eligibility.
Purchase Price and Valuation Basis
States the proposed total enterprise value, the EBITDA multiple applied, and the normalized EBITDA figure used as the basis for valuation. For jan-san distributors, valuation multiples typically range from 3x to 5x trailing twelve-month adjusted EBITDA depending on customer diversification, gross margin profile, and contract revenue stability.
Example Language
Buyer proposes a total purchase price of $[X,XXX,000], representing approximately [3.5x–4.5x] of the Company's trailing twelve-month adjusted EBITDA of $[XXX,000] as reflected in the financial statements and tax returns for the periods ending [Date]. This valuation assumes normalized EBITDA inclusive of documented add-backs for owner compensation above market replacement cost, personal vehicle expenses, and non-recurring professional fees, as presented in the seller's EBITDA schedule. The purchase price is subject to adjustment based on findings from financial due diligence and quality of earnings review.
💡 The most common valuation disputes in jan-san deals arise from disagreements on add-backs — particularly owner compensation. If the seller has been paying themselves $350,000 annually but a replacement operations manager would cost $120,000, the $230,000 difference is a legitimate add-back. Challenge add-backs for one-time events that are actually recurring, such as annual vehicle repairs on an aging delivery fleet. Gross margin by product category is a critical sanity check: distributors with gross margins below 25% often have limited pricing power and should trade at the lower end of the multiple range.
Deal Structure and Sources of Funds
Details how the purchase price will be funded, including SBA loan proceeds, buyer equity injection, seller note terms, and any earnout component. Jan-san distributor acquisitions are frequently SBA-eligible given stable cash flows and tangible asset bases, making deal structure clarity essential for lender review.
Example Language
The proposed purchase price will be funded as follows: (i) SBA 7(a) loan proceeds of approximately $[X,XXX,000], representing [75–80%] of total consideration; (ii) Buyer equity injection of $[XXX,000], representing approximately [10–15%] of total consideration; (iii) Seller note of $[XXX,000], representing [5–10%] of total consideration, to be held on full standby for 24 months post-closing in compliance with SBA lender requirements, with interest accruing at [6–7%] per annum and principal payments commencing in month 25 over a [3–5] year amortization period. Any earnout component is structured as described in Section [X] and is subordinated to SBA lender approval.
💡 SBA lenders will scrutinize the seller note standby requirement — sellers who need immediate liquidity from their note payments will push back hard on this. Frame the seller note as a trust signal: a seller willing to leave capital in the deal post-close signals confidence in the business's continuity. For deals above $3M enterprise value, discuss with your SBA lender whether a partial earnout on customer retention can satisfy a portion of the seller note requirement. Note that SBA 7(a) loans typically require a personal guarantee from the buyer and a life insurance assignment.
Working Capital Peg and Inventory Adjustment
Establishes the working capital target at closing — typically defined as accounts receivable plus inventory minus accounts payable — and specifies how inventory will be valued and adjusted. For jan-san distributors, inventory quality and turnover are major deal variables, and the LOI should set clear expectations on how obsolete SKUs are handled.
Example Language
The purchase price assumes delivery of a normalized working capital balance of $[XXX,000] at closing, calculated as a 90-day trailing average of accounts receivable, finished goods inventory valued at cost, and trade accounts payable ('Working Capital Peg'). Inventory shall be physically counted within 10 business days prior to closing by a mutually agreed third party. Inventory items with no sales activity in the prior 12 months ('Slow-Moving SKUs') shall be excluded from the working capital calculation unless Buyer agrees in writing to assume such items at a negotiated discount of no greater than [40%] of cost. Any working capital surplus or deficit greater than $[25,000] relative to the Working Capital Peg shall result in a dollar-for-dollar post-closing purchase price adjustment.
💡 Inventory disputes are among the most common deal-killers in jan-san acquisitions. Sellers tend to overvalue slow-moving janitorial chemicals, legacy paper product overstock, and discontinued SKUs from suppliers they no longer actively carry. Insist on a pre-LOI inventory walkthrough and request an aged inventory report by SKU before signing. The 90-day trailing average working capital peg protects buyers from sellers who accelerate collections or defer payables in the weeks before closing. If the seller has been managing cash-basis accounting, work with your CPA to construct an accrual-basis working capital baseline before establishing the peg.
Contingencies and Due Diligence Period
Defines the exclusivity period, the scope of due diligence required, and the conditions that must be satisfied for the transaction to proceed. For jan-san distributor deals, key contingencies include satisfactory review of customer contracts, supplier agreement transferability, and SBA lender approval.
Example Language
Buyer's obligation to consummate the transaction is contingent upon: (i) completion of satisfactory financial, operational, and legal due diligence within [45–60] days of LOI execution ('Due Diligence Period'); (ii) confirmation that top commercial customer accounts representing no less than [70%] of trailing twelve-month revenue are willing to continue purchasing relationships post-close, as evidenced by customer reference calls or written comfort letters; (iii) confirmation that all material supplier agreements, including exclusive or preferred distribution arrangements and vendor rebate programs, are transferable to Buyer without consent fee or material modification; (iv) receipt of SBA 7(a) loan commitment from [Lender Name or 'a qualified SBA lender']; and (v) execution of a mutually acceptable Asset Purchase Agreement. Seller grants Buyer exclusive negotiating rights for [45] days from LOI execution.
💡 Sellers are often reluctant to allow direct customer contact during due diligence for fear of disrupting relationships or signaling that the business is for sale. Negotiate a phased approach: review customer contracts and aging reports in Phase 1, then conduct limited reference calls with the seller present in Phase 2 only after you are highly confident in the deal. Supplier agreement transferability is non-negotiable — if a key supplier requires consent for assignment and the seller cannot confirm consent will be granted, the deal economics may change materially. Always verify rebate program eligibility post-transfer, as some manufacturer rebate tiers reset upon change of ownership.
Earnout Structure
Defines any performance-based contingent consideration tied to post-closing business performance, typically linked to revenue retention from named commercial accounts. Earnouts in jan-san deals are most commonly used when customer relationships are heavily owner-dependent or when a single account represents a meaningful revenue concentration.
Example Language
In addition to the fixed purchase price, Buyer agrees to pay Seller an earnout of up to $[XXX,000] based on the following: (i) If aggregate revenue from the Customer Retention List (defined as the top [15] commercial accounts by trailing twelve-month revenue, attached as Exhibit A) equals or exceeds [90%] of their trailing twelve-month baseline revenue during the 12-month period following closing, Seller shall receive the full earnout; (ii) If such revenue falls between [75%] and [90%] of baseline, Seller shall receive a pro-rata portion of the earnout; (iii) If such revenue falls below [75%] of baseline, no earnout shall be payable. Earnout payments, if any, shall be made within 30 days following the end of the 12-month earnout period. Buyer agrees not to take actions reasonably expected to impair customer retention during the earnout period.
💡 Earnouts create alignment when owner-dependent customer relationships are a genuine risk — but they also create post-closing conflict if not carefully defined. Specify exactly which accounts are on the retention list, how revenue is measured (invoiced, collected, or recognized), and whether new revenue from existing accounts counts toward the baseline. Sellers should push for anti-sandbagging provisions that prevent the buyer from deliberately underserving key accounts during the earnout period. Buyers using SBA financing should confirm with their lender that the earnout structure does not disqualify the loan or require additional equity injection.
Non-Compete and Transition Services
Establishes the seller's post-closing obligations including a non-compete covenant and the duration and scope of transition assistance. In jan-san distributor acquisitions, the owner's personal relationships with commercial accounts are a core asset, making structured knowledge transfer essential.
Example Language
Seller agrees to: (i) a non-compete covenant prohibiting direct or indirect engagement in janitorial, sanitation, or facilities supply distribution within [100 miles] of the Company's primary service area for a period of [3–5] years post-closing; (ii) a non-solicitation covenant prohibiting contact with Company customers, suppliers, or employees for [3–5] years post-closing; (iii) a transition services period of [90–180] days during which Seller shall provide up to [20] hours per week of operational and customer relationship support, including joint customer introduction calls with Buyer, supplier relationship introductions, and knowledge transfer on key account histories, at no additional cost to Buyer beyond any agreed consulting fee of $[X,000] per month.
💡 Sellers often underestimate how critical their personal relationships are to customer retention — and buyers should leverage this honestly in negotiations. A 3-year non-compete is standard and enforceable in most states for a business sale; 5 years is defensible when the seller has deep regional brand recognition. The transition period is equally important: insist on joint introductions to the top 10 commercial accounts, warm handoffs to all key supplier contacts, and a documented walkthrough of any informal pricing arrangements or service accommodations that are not captured in contracts. Some sellers will accept a reduced seller note interest rate in exchange for a more robust transition commitment.
Confidentiality and Exclusivity
Reaffirms confidentiality obligations established in any prior NDA and grants the buyer an exclusive negotiating period. In jan-san distribution deals, confidentiality is particularly sensitive given the risk of customers, suppliers, and employees learning of a potential sale before closing.
Example Language
This LOI reaffirms the confidentiality obligations of both parties as set forth in the Non-Disclosure Agreement dated [Date]. Seller agrees not to solicit, entertain, or respond to acquisition proposals from any third party during the Exclusivity Period of [45] days from the date of this LOI. Buyer agrees to maintain strict confidentiality regarding the proposed transaction and will not contact customers, suppliers, employees, or lenders of the Company without Seller's prior written consent, except as required by Buyer's SBA lender in the normal course of loan underwriting. Either party may terminate this LOI upon [5] business days' written notice if good-faith negotiations break down.
💡 In jan-san businesses with 50–300 commercial accounts, even a rumor of ownership change can prompt customers to solicit competing quotes from national distributors. Both parties have aligned interests in keeping the transaction confidential until closing. Buyers should be cautious about conducting supplier reference calls without seller coordination — an uncoordinated call to a key supplier could jeopardize an exclusive distribution agreement or tip off a competitor. Build a confidential due diligence protocol with the seller before beginning any third-party outreach.
Customer Concentration Cap and Retention Threshold
Before finalizing the purchase price, negotiate a specific representation that no single commercial account represents more than 20% of trailing twelve-month revenue, and that the top three accounts collectively represent less than 45% of revenue. If the business fails this threshold, the LOI should include a purchase price reduction mechanism or expanded earnout tied to those specific accounts. Request a customer revenue breakdown by account for the prior three years to assess retention trends, not just a single-year snapshot. High customer concentration is the single most common value impairment factor in jan-san distributor deals, and it must be addressed explicitly in the LOI rather than left to the APA.
Supplier Agreement Transferability and Rebate Continuity
Negotiate an explicit representation that all supplier agreements — including exclusive or preferred distribution rights, volume rebate tiers, co-op advertising programs, and pricing accommodations — are fully transferable to Buyer without material modification or consent fee. If any supplier agreement requires formal assignment consent, the LOI should condition closing on receipt of such consent. Rebate programs deserve special attention: some manufacturers reset rebate tier eligibility upon change of ownership, which can meaningfully compress gross margins in Year 1 post-acquisition. Request copies of all supplier agreements and rebate letters as part of the initial due diligence data room.
Inventory Valuation Methodology and Obsolete SKU Treatment
Negotiate the exact methodology for valuing on-hand inventory before the LOI is signed, not after. Establish that inventory will be valued at the lower of cost or net realizable value, that a pre-closing physical count is required, and that slow-moving SKUs (no sales in the prior 12 months) will be excluded from the working capital peg or discounted to a mutually agreed recovery value. For jan-san distributors carrying specialty chemicals, private-label products, or seasonal items, obsolete inventory can represent 10–20% of the stated inventory balance. Negotiate a pre-LOI inventory walkthrough as a condition of your offer to avoid surprises at closing.
Owner Transition Commitment and Non-Compete Geography
Negotiate the length and specificity of the seller's transition commitment before the LOI is signed, as sellers become less motivated to commit once they have received the majority of their purchase price at closing. A 90-to-180-day transition with defined weekly hour commitments, joint customer introductions, and documented supplier handoffs is the baseline expectation. The non-compete geography should cover the distributor's actual service area plus a buffer, not a statewide or national restriction that is harder to enforce. In markets where the seller is personally known as the face of the brand, consider whether a consulting arrangement extending beyond the formal transition period makes sense as additional consideration.
SBA Lender Approval and Standby Period for Seller Note
If you are using SBA 7(a) financing, the LOI must be structured from the outset to align with SBA lender requirements. This means the seller note must be on full standby for a minimum of 24 months post-closing, the equity injection must meet the lender's minimum threshold (typically 10–15% of total project cost), and any earnout must be reviewed by the lender to confirm it does not trigger additional equity injection requirements. Sellers who are unfamiliar with SBA standby provisions may resist the 24-month payment deferral — explain that the standby is a lender requirement, not a buyer preference, and that it is standard in SBA-financed business acquisitions. Build the SBA approval timeline into your exclusivity period to avoid extensions.
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Most LOI provisions are non-binding with the exception of confidentiality, exclusivity, and any break-up fee provisions. The purchase price, deal structure, and contingencies outlined in the LOI are expressions of intent that inform the definitive Asset Purchase Agreement but are not legally enforceable on their own. However, the LOI sets the economic and structural framework that both parties rely on throughout due diligence, and material deviations from LOI terms during APA negotiation are a leading cause of deal failure. In jan-san distributor deals specifically, treat the LOI as a commitment to negotiate in good faith toward the documented terms — walk away from any seller who attempts to significantly renegotiate price or structure after LOI execution without a due diligence-based justification.
Janitorial supply distributors in the $1M–$5M revenue range typically trade at 3x to 5x trailing twelve-month adjusted EBITDA, with deal-specific variables determining where within that range a business falls. Businesses with diversified commercial customer bases (no single account above 15% of revenue), exclusive or preferred supplier agreements, gross margins above 28%, recurring contract revenue, and documented SOPs that reduce owner dependency command multiples at the higher end of the range — 4.5x to 5x. Businesses with heavy customer concentration, owner-managed sales with no dedicated sales staff, declining gross margins, or informal supplier arrangements trade at 3x to 3.5x. Use the LOI to propose a specific multiple tied to a specific adjusted EBITDA figure, not a lump-sum price, so that price adjustments based on due diligence findings are mathematically transparent.
The LOI should reference the scope of due diligence required to satisfy your contingencies without embedding a full checklist, which is better delivered separately as a due diligence request list after LOI execution. In your LOI, specify the categories of due diligence you require — financial, customer, supplier, operational, and legal — and the timeline. For a janitorial supply distributor, the most critical pre-LOI data points you should request before signing are: three years of tax returns and P&Ls, a customer revenue breakdown by account showing the top 20 accounts and their trailing twelve-month revenue, a current inventory aging report, and copies of the top three supplier agreements. These four items will tell you whether the deal is worth pursuing before you grant the seller exclusivity.
When a jan-san distributor owner has personally managed key commercial accounts for 10–20 years, buyer concern about relationship continuity is legitimate and an earnout is a reasonable risk-sharing mechanism. Structure the earnout around the specific accounts at risk — typically the top 10 to 15 commercial customers by revenue — and set a 12-month measurement window post-closing. The earnout should reward the seller for a smooth transition, not penalize them for normal customer attrition. A well-structured earnout pays the full amount if customer revenue from the retention list stays at or above 90% of baseline, pays pro-rata between 75% and 90%, and pays nothing below 75%. Critically, negotiate buyer anti-sandbagging protections so the seller has confidence that the buyer will not deliberately underserve accounts to avoid the earnout payment. Document these protections explicitly in both the LOI and the APA.
If a supplier refuses to consent to the assignment of an exclusive or preferred distribution agreement, you face three practical options: negotiate with the supplier directly for a new agreement on acceptable terms, reduce the purchase price to reflect the loss of that supplier relationship, or walk away from the deal. The worst outcome is closing the deal without resolving the issue and discovering post-closing that you cannot honor commitments to customers who rely on that product line. This is why supplier agreement transferability must be a hard contingency in the LOI, not a soft representation. Before submitting your LOI, ask the seller to informally gauge each key supplier's position on a change of ownership — most suppliers prefer continuity and will cooperate, but some have right-of-first-refusal provisions or exclusivity reversion clauses that are buried in older agreements.
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