Letter of Intent Template for Acquiring a Light Industrial Staffing Agency

Identification of Parties and Transaction Structure

Establishes who is buying, who is selling, what legal entity is being acquired, and whether the deal is structured as an asset purchase or equity purchase. For light industrial staffing, asset purchases are strongly preferred because they allow the buyer to leave behind unknown workers' compensation claims, open unemployment audits, and co-employment liabilities that may not surface until post-close.

💡 Sellers often push for equity sales to achieve cleaner tax treatment, but buyers should insist on an asset purchase structure given the co-employment and workers' comp tail risk inherent in staffing businesses. If the seller requires an equity structure, negotiate a meaningful escrow — typically 10–15% of purchase price held for 18–24 months — to cover contingent liabilities. Flag this early in the LOI to avoid wasting diligence time on a structurally unworkable deal.

Purchase Price and Valuation Basis

States the proposed purchase price, the valuation methodology used to arrive at it, and whether the price is fixed or subject to adjustment based on diligence findings. Light industrial staffing businesses typically trade at 3x–5x adjusted EBITDA or 0.3x–0.6x gross revenue, depending on gross margin quality, client tenure, and recurring contract structure. The LOI should anchor the price to a specific metric so both parties understand what adjustments are permissible.

💡 Staffing sellers frequently present top-line revenue figures without segmenting gross margin by client or job category. Push to define the EBITDA calculation explicitly in the LOI — including how owner compensation, non-recurring payroll costs for temporary administrative hires, and workers' comp reserve adjustments are treated. An EMR above 1.0 signals a deteriorating safety culture and will raise your insurance costs post-close, which directly compresses margins. Protect yourself with a price adjustment trigger tied to EMR thresholds discovered in diligence.

Deal Structure and Financing

Outlines how the purchase price will be funded, including the SBA loan component, seller note, earnout, and equity rollover if applicable. SBA 7(a) financing is the most common structure for staffing acquisitions in the $1M–$5M revenue range, requiring a seller note of at least 10% on standby for 24 months when used to meet the equity injection requirement. This section should define each component so seller expectations are set before diligence begins.

💡 Sellers unfamiliar with SBA deals are often surprised by the standby requirement on the seller note, which means they receive no payments on that note for the first 24 months post-close. Explain this early to avoid deal fatigue late in the process. If the seller's primary concern is maximizing upfront cash, consider increasing the SBA loan amount and reducing the earnout component. If client retention is the primary risk, a larger earnout tied to specific account retention milestones provides both parties with aligned incentives through the transition period.

Earnout Structure and Client Retention Provisions

Defines how any variable component of the purchase price will be measured and paid, with specific reference to client revenue retention. In light industrial staffing, the loss of one or two anchor manufacturing or distribution accounts in the first year post-close can eliminate a significant percentage of the business's value. The earnout structure should be tied to measurable, auditable revenue metrics from named accounts.

💡 Sellers will negotiate hard on the definition of 'retained' revenue — whether it includes new placements at existing client locations, expansions to new facilities of existing clients, or only the exact revenue lines active at closing. Buyers should define the Retained Client List with specificity, including client name, billing rates, and average weekly hours, attached as an exhibit to the definitive agreement. Tie earnout eligibility to the seller's active participation in client introductions and transition activities during the earnout period to ensure alignment.

Due Diligence Scope and Timeline

Specifies the scope of buyer's investigation, the timeline for completion, and the seller's obligations to provide access to records. For staffing acquisitions, due diligence must extend beyond financial statements to include workers' compensation loss runs, I-9 audit exposure, client contract terms, recruiter employment agreements, and gross margin analysis by account. A 45–60 day diligence window is standard for businesses in this revenue range.

💡 Sellers of staffing businesses are often resistant to sharing I-9 records and workers' comp loss runs early in diligence due to confidentiality concerns and fear of exposing compliance gaps. Frame these requests as standard requirements for SBA lender approval — which they are — to reduce friction. Workers' comp loss runs from the carrier are the single most important document in staffing diligence; open claims discovered post-close in an equity deal can create six-figure liabilities. Build in a provision that allows you to extend the diligence period by [15] days if document delivery is delayed.

Exclusivity and No-Shop Provision

Prevents the seller from marketing the business or entertaining competing offers during the due diligence period. This is standard in LOIs but particularly important in staffing acquisitions where the buyer will be investing significant time and cost in workers' comp audits, client outreach planning, and SBA lender engagement.

💡 Sellers occasionally resist a full no-shop clause if they have active conversations with other buyers. If the seller insists on a shorter exclusivity window, tie the extension to SBA lender engagement milestones — once a lender issues a conditional commitment, most sellers will agree to extend exclusivity because the deal is demonstrably moving forward. A 45–60 day exclusivity window is appropriate for a staffing acquisition given the depth of workers' comp and compliance diligence required.

Transition Support and Non-Solicitation

Defines the seller's obligations to support the transition of client and employee relationships post-close, and prohibits the seller from competing or soliciting clients and employees after the sale. In light industrial staffing, where client relationships are deeply personal and account managers may follow the seller if not properly managed, this section carries significant economic weight.

💡 The 90-day transition period is the minimum for a staffing business — push for up to 6 months if the seller is the primary relationship holder for anchor accounts. The non-compete radius and duration should reflect the actual geographic market served by the business; a regional agency focused on a single metro area may require a tighter radius but longer duration. Sellers will often negotiate on the non-compete to preserve the ability to do contract work; carve out explicit exceptions in writing to avoid post-close disputes over what constitutes prohibited activity.

Conditions to Closing

Lists the material conditions that must be satisfied before Buyer is obligated to close the transaction, including SBA loan approval, satisfactory completion of due diligence, consent from key clients, and absence of material adverse changes in the business.

💡 Client consent conditions are sensitive — most staffing agencies operate without change-of-control provisions in their client contracts, which means formal consent is rarely legally required but practically critical. Frame the client contact condition as a joint activity during the transition period rather than a binary consent requirement, which can alarm clients and create unnecessary churn risk. The workers' comp open claims threshold is a negotiating point; adjust the dollar figure based on what your insurance broker confirms is manageable within your projected EMR post-close.