Letter of Intent Template for Buying or Selling a Manufacturing Business

Parties and Business Identification

Identifies the buyer entity, seller entity, and the specific business being acquired — including legal name, operating name, physical location of facilities, and a brief description of the manufacturing operation.

💡 Buyers should confirm early whether they are acquiring assets or equity, as this affects which entity is named as the acquiring party. Sellers should ensure the correct legal entity is identified — particularly important if production equipment, real estate, or IP are held in separate holding companies, which is common in family-owned manufacturers.

Proposed Purchase Price and Valuation Basis

States the total proposed enterprise value, the basis for that valuation (typically a multiple of normalized EBITDA), and any preliminary assumptions about working capital, inventory, and equipment being included in the transaction price.

💡 Manufacturing valuations in the $1M–$5M revenue range typically trade at 3.5x–5.5x EBITDA. Buyers should explicitly state what is included — especially equipment and inventory — to avoid disputes at closing. Sellers should confirm whether real estate is included in the enterprise value or treated as a separate lease or purchase. Buyers relying on SBA 7(a) financing should note that the lender will require an independent equipment appraisal and business valuation, which may affect the final price.

Deal Structure and Financing

Outlines how the transaction will be funded — including SBA loan proceeds, buyer equity injection, seller financing, and any earnout component — and the anticipated ownership structure at closing.

💡 SBA lenders will scrutinize customer concentration heavily in manufacturing acquisitions — a single customer representing more than 20–25% of revenue may trigger additional conditions or affect loan approval. Sellers should understand that a seller note in an SBA deal is often placed on full standby for 24 months. Buyers should be transparent about SBA pre-qualification status to avoid losing time in exclusivity on deals they cannot finance.

Earnout Provisions

Describes any contingent consideration tied to the Company's post-closing financial performance — common in manufacturing deals where the seller's relationships or proprietary knowledge are central to revenue continuity.

💡 Earnouts are common in manufacturing acquisitions where the seller is the primary relationship holder with key OEM or government contract customers. Sellers should negotiate for revenue-based rather than EBITDA-based earnout metrics wherever possible, as buyers have more control over cost allocation post-closing. Buyers should ensure the earnout agreement includes anti-sandbagging provisions and clear accounting methodology to prevent disputes. Both parties should agree on how order backlog fluctuations, raw material price swings, or equipment downtime are treated in earnout calculations.

Due Diligence Scope and Timeline

Defines the scope of buyer's due diligence investigation, the documentation Seller must provide, and the timeline for completing due diligence before the LOI expires or a definitive agreement is executed.

💡 Manufacturing due diligence timelines frequently extend beyond initial estimates due to equipment appraisal scheduling and environmental review complexity. Buyers should build in a 10–15 day extension right. Sellers should prepare a due diligence data room in advance, including maintenance logs, customer purchase order history, and certification documentation, to accelerate the process and signal operational credibility.

Exclusivity Period

Grants the buyer an exclusive negotiating window during which the seller agrees not to solicit, entertain, or accept competing offers — protecting the buyer's investment in due diligence and legal costs.

💡 Sixty days is a reasonable exclusivity window for a manufacturing acquisition of this size, given the time required for equipment appraisals, environmental assessments, and SBA lender approval. Sellers should resist exclusivity periods longer than 75 days without a hard closing deadline. Buyers should include a right to extend exclusivity by 15–30 days if SBA processing or third-party appraisals are delayed, subject to seller consent.

Conditions to Closing

Lists the material conditions that must be satisfied before the transaction can close, protecting both parties from being obligated to proceed if key facts change or cannot be verified.

💡 Key employee retention is frequently the most contested closing condition in owner-operated manufacturing businesses. Buyers should identify no more than three to five truly critical employees and negotiate retention bonuses funded from the purchase price. Sellers should resist broad 'material adverse change' language that could give buyers an exit on minor fluctuations in order backlog or raw material costs.

Confidentiality and Non-Disclosure

Affirms the confidentiality obligations of both parties regarding information exchanged during the LOI and due diligence process, typically referencing a separately executed NDA.

💡 Confidentiality is especially sensitive in manufacturing transactions where customer relationships and supplier contracts could be jeopardized by premature disclosure. Sellers should be particularly cautious about buyers contacting key customers or employees before closing without explicit consent. Buyers should ensure their SBA lender and M&A attorney are already bound by NDAs before sharing any confidential financial or operational data.

Non-Binding Nature and Binding Provisions

Clarifies which sections of the LOI are legally binding (typically exclusivity, confidentiality, and break-up fee provisions) and which are non-binding expressions of intent subject to definitive agreement.

💡 Buyers and sellers often underestimate the importance of clearly delineating binding versus non-binding provisions. In manufacturing deals, the binding exclusivity provision is the most commercially significant — sellers should ensure it is time-limited and paired with a buyer's obligation to provide good-faith updates on SBA approval or due diligence progress.

Break-Up Fee

Specifies a fee payable by the buyer if they terminate the transaction without cause after the exclusivity period begins, compensating the seller for lost time and opportunity cost.

💡 Break-up fees in lower middle market manufacturing deals typically range from $10,000 to $50,000, depending on deal size. Sellers should push for a break-up fee to deter buyers who tie up the business without serious intent. Buyers should carve out SBA financing failure and material due diligence discoveries — particularly environmental liabilities or undisclosed equipment condition issues — as permissible no-fee exit ramps.