Letter of Intent Template for Acquiring a Kombucha or Functional Beverage Brand

Parties and Transaction Overview

Identifies the buyer entity, seller entity, and the legal structure of the proposed transaction — asset purchase, stock purchase, or merger. For kombucha brands, asset purchases are most common in the lower middle market because they allow buyers to selectively acquire distribution agreements, formulations, trademarks, and equipment while leaving behind unknown liabilities tied to health claim disputes or prior co-packer obligations.

💡 Sellers in the functional beverage space often prefer a stock purchase to achieve capital gains tax treatment and avoid the complexity of re-assigning individual distributor and retail contracts. Buyers typically resist this due to unknown regulatory liability around historical health claims. The LOI should explicitly name the structure and acknowledge that distributor and retail contract assignability will be confirmed during due diligence. If the seller insists on a stock purchase, negotiate a meaningful indemnification escrow tied to pre-closing regulatory and labeling liabilities.

Purchase Price and Valuation Basis

States the proposed total enterprise value, the methodology used to arrive at it, and how it is allocated between upfront cash at closing, seller financing, and any contingent earnout component. Kombucha brands in the $1M–$5M revenue range typically transact at 2.5x–4.5x EBITDA or 1.0x–2.0x trailing twelve-month revenue depending on gross margin quality, distribution diversity, and brand differentiation.

💡 Sellers almost always push back on EBITDA-based multiples when their add-backs are aggressive or their gross margins are inconsistent. Come prepared with a detailed EBITDA reconstruction that separates owner compensation, non-recurring expenses, and any personal expenses commingled in the P&L. For brands with 45%+ gross margins and strong DTC subscription revenue, a modest premium to the base multiple is defensible. However, if the brand has experienced any retail delistings or distribution gaps in the prior 12 months, adjust the multiple downward and explicitly tie the earnout to retail door count stabilization rather than revenue alone.

Earnout Structure

Defines the contingent payment terms, measurement criteria, payment schedule, and any protective covenants for the seller during the earnout period. Earnouts are extremely common in functional beverage acquisitions because brand value is often tied to distribution momentum that cannot be fully verified at closing.

💡 Sellers in the kombucha space are often deeply protective of their brand mission and fear that a new operator will cut trade spend or reformulate products to improve margins, causing retail delistings that undermine the earnout. Build seller protections into the earnout that are reasonable but time-limited. Buyers should resist earnout structures that give sellers veto rights over ordinary business decisions. Instead, agree on specific negative covenants tied to the earnout measurement period only. Always define 'retail door count' precisely — distinguish between active scan doors, authorized doors, and doors with minimum velocity thresholds.

Deposit and Exclusivity

Establishes the good faith deposit amount, its refundability conditions, and the exclusivity period during which the seller agrees not to solicit or negotiate with other buyers. Exclusivity is critical in functional beverage deals where the seller may have multiple IOIs from strategic acquirers or competing search fund operators.

💡 For functional beverage brands with multiple interested parties — particularly if the brand has national retail presence or a strong DTC subscriber base — sellers will push for shorter exclusivity windows of 45–60 days. Buyers relying on SBA financing should request at least 75–90 days given lender timelines. Tie the deposit forfeiture condition carefully: make it contingent on the buyer failing to proceed without cause, not on the buyer identifying material issues during due diligence that were not previously disclosed. Always carve out a due diligence termination right if regulatory or labeling compliance issues are discovered.

Due Diligence Scope and Access

Outlines the categories of information the buyer requires access to, the timeline for delivery, and any confidentiality obligations governing the process. In the functional beverage space, due diligence must explicitly call out regulatory compliance review, distributor agreement assignability, and COGS verification as priority workstreams.

💡 The most common due diligence failure in kombucha acquisitions is insufficient scrutiny of retail placement stability. Request a door-by-door velocity report from the seller's distributor partners, not just a summary door count. Many brands overstate active placement by counting authorized but non-scanning retail locations. Also prioritize a review of all FDA correspondence and any state-level regulatory inquiries into probiotic or functional claims — these are frequently undisclosed and can represent material post-closing liability. For co-packer arrangements, confirm that the co-packer relationship is assignable and that pricing is locked for at least 12 months post-closing.

Financing Contingency

States whether the transaction is contingent on the buyer obtaining SBA or conventional financing, the target financing structure, and the timeline for obtaining a lender commitment. SBA 7(a) financing is common in this category and lenders will have specific requirements around brand IP, cash flow documentation, and working capital.

💡 SBA lenders financing kombucha brand acquisitions will scrutinize the brand's ability to service debt independent of the founder's involvement. Be prepared to document the business's historical cash flow with clear add-backs and to demonstrate that key distribution agreements will survive the ownership transition. Some lenders will require a portion of the seller note to remain in place as a standby note with no payments for the first 24 months. Sellers should understand that SBA deals typically require a longer escrow timeline and should not view financing contingency language as a lack of buyer commitment.

Seller Transition and Non-Compete

Defines the seller's post-closing obligations including a transition assistance period, knowledge transfer commitments, and a non-competition and non-solicitation covenant. In founder-led kombucha brands, the seller's relationships with distributors, key retail accounts, and the brand's online community are critical to retaining value post-closing.

💡 Sellers who have built genuine brand equity through personal storytelling, social media presence, or community relationships will resist broad non-competes that prevent any future involvement in the wellness space. Consider carving out advisory roles, personal social media activity, or future ventures that do not compete directly with the acquired brand's specific product category. The more the seller's identity is tied to the brand, the more important it is to negotiate a rollover equity stake or earnout that aligns their financial interest with post-closing success rather than relying solely on restrictive covenants.

Representations and Warranties Preview

Signals the key representations the buyer will require from the seller in the definitive purchase agreement, giving both parties early visibility into the risk allocation framework and reducing late-stage negotiation surprises.

💡 Sellers of smaller kombucha brands often push back on broad rep and warranty coverage because they cannot afford to self-insure large indemnification obligations post-closing. Explore rep and warranty insurance for deals above $2M in purchase price, though premiums for food and beverage businesses with regulatory exposure can be elevated. At minimum, negotiate an indemnification escrow of 10–15% of the purchase price held for 18 months to cover general breaches, with carve-outs for fundamental reps and fraud that survive longer and are not subject to the escrow cap.