Letter of Intent Template & Negotiation Guide for Medical Equipment Supplier Acquisitions

Parties and Transaction Overview

Identifies the buyer entity, seller entity, and the specific business or assets being acquired. In medical equipment supplier transactions, this section should specify whether the transaction is structured as an asset purchase or stock purchase, as the choice has direct implications for the transferability of Medicare/Medicaid provider numbers, DMEPOS accreditation, state licenses, and supplier agreements.

💡 Asset purchase structures are strongly preferred by buyers in DME transactions because they allow selective assumption of liabilities and provide cleaner separation from historical billing compliance exposure. However, sellers should be aware that Medicare and Medicaid provider numbers generally cannot be transferred in an asset sale — the buyer must independently enroll, which creates a reimbursement gap risk post-close. Sellers with significant Medicare/Medicaid revenue should negotiate for a transition services agreement and CMS change of ownership (CHOW) process support to protect revenue continuity. If a stock purchase is being considered to preserve provider numbers, buyers must insist on comprehensive billing compliance representations and a robust indemnification structure.

Purchase Price and Valuation Methodology

Establishes the proposed purchase price, the valuation methodology applied, and how the price is allocated between tangible assets, intangible assets such as customer relationships and accreditations, and goodwill. For medical equipment suppliers, the LOI should explicitly state how recurring rental and service contract revenue was weighted versus one-time equipment sales in arriving at the EBITDA multiple applied.

💡 Sellers should push back on any LOI that does not explicitly acknowledge the quality premium of recurring rental and service contract revenue. A business generating 60%+ of revenue from rental and service contracts should command a multiple at the higher end of the 3.5x–6x range typical in this sector. Buyers will frequently attempt to apply a blended multiple that drags down valuation by treating all revenue equally. Sellers should prepare a clear revenue bridge document segmenting recurring versus episodic revenue prior to LOI negotiation. Buyers should also ensure that EBITDA normalization removes any non-recurring compliance remediation costs, owner-discretionary expenses, and above-market owner compensation — all common in owner-operated DME businesses.

Deal Structure and Financing

Outlines how the purchase price will be funded, including the split between senior debt, equity injection, seller financing, and any earnout components. Given the prevalence of SBA 7(a) financing in lower middle market DME acquisitions, this section should specify the anticipated financing vehicle and any conditions tied to SBA approval.

💡 Sellers should scrutinize earnout structures carefully. Earnouts tied to supplier contract retention are common in DME acquisitions but can be manipulated post-close by a buyer who fails to actively maintain supplier relationships. Sellers should negotiate for earnout conditions that are within their control during the transition period, such as providing introductions and transition support, rather than solely dependent on post-close buyer performance. For SBA-financed deals, sellers should confirm the proposed seller note is properly subordinated and does not trigger SBA standby provisions that restrict repayment. Buyers using SBA 7(a) financing should anticipate 60–90 days for lender approval and build that timeline into the LOI exclusivity period.

Earnout Structure and Milestones

Defines the specific conditions, measurement periods, and payment mechanics for any earnout component of the purchase price. In medical equipment supplier acquisitions, earnouts are most commonly tied to the retention of reimbursement approvals, supplier agreements, or key referral relationships post-close.

💡 Sellers should insist on clear, objective, and independently verifiable earnout milestones. Avoid subjective language such as 'substantially retained' or 'commercially reasonable efforts' without defining specific thresholds. Buyers benefit from tiered earnout structures that create seller alignment during the transition without deferring excessive purchase price contingency. Both parties should negotiate a dispute resolution mechanism — typically binding arbitration — specifically for earnout disagreements, as these are among the most litigated elements of post-close M&A transactions in the healthcare services sector.

Assets Included and Excluded

Specifies which assets are included in the transaction — such as inventory, equipment, receivables, customer lists, accreditations, and supplier agreements — and which are excluded, such as cash, personal vehicles, or non-business real estate. This section is especially important in DME acquisitions given the significance of regulatory credentials and intangible assets.

💡 Inventory valuation is frequently a major negotiation point in DME acquisitions due to obsolescence risk. Buyers should insist on a physical inventory count within 30 days of LOI execution and an agreed methodology for valuing slow-moving or obsolete items — typically cost minus an aging discount. Sellers should resist large blanket obsolescence haircuts and instead negotiate category-by-category treatment based on actual product lifecycle data. Accounts receivable treatment — whether included or excluded — should be clearly addressed in the LOI to avoid disputes at close. Medicare and Medicaid receivables require particular care given the risk of post-close audit clawbacks.

Due Diligence Scope and Timeline

Establishes the scope of buyer's confirmatory due diligence, the timeline for completion, and the access rights granted to Seller's books, records, facilities, and personnel. For medical equipment suppliers, due diligence scope must explicitly address regulatory compliance, billing history, and reimbursement exposure.

💡 Buyers in DME acquisitions should insist on reviewing at least three years of Medicare and Medicaid remittance data and any audit correspondence or overpayment demand letters — these are non-negotiable due diligence items given the potential for successor liability exposure even in asset purchases. Sellers should prepare a compliance summary in advance to accelerate the process and demonstrate clean billing history as a value driver. Both parties should agree in writing on who bears the cost of third-party due diligence specialists such as healthcare compliance attorneys and inventory appraisers, as these costs are material in regulated industry transactions.

Exclusivity and No-Shop Provisions

Grants the buyer an exclusive negotiating period during which the seller agrees not to solicit, entertain, or advance discussions with other potential acquirers. The exclusivity period should be calibrated to the realistic timeline for completing due diligence and financing approval in a regulated healthcare acquisition.

💡 Sellers should resist exclusivity periods longer than 60–75 days without meaningful buyer milestones built in — for example, requiring the buyer to submit a completed SBA loan application within 30 days or deliver a due diligence findings report within 45 days. Uncapped exclusivity periods with no buyer obligations leave sellers exposed if a buyer loses interest or uses the period to negotiate down the price. Buyers should push for 75–90 days given SBA lender approval timelines, but should be prepared to accept shorter periods with extension rights tied to demonstrated progress. Including a mutual termination right with no material adverse consequence after the exclusivity period expires protects both parties.

Regulatory and Accreditation Continuity

Addresses how DMEPOS accreditation, Medicare and Medicaid provider numbers, state licenses, and other regulatory credentials will be handled through and after the close of the transaction. This section is unique to healthcare business acquisitions and is critical to protecting post-close revenue continuity.

💡 This section is the most industry-specific element of a DME acquisition LOI and is frequently under-negotiated by parties without healthcare M&A experience. Buyers must understand that Medicare provider numbers are not simply transferred — the buyer must enroll as a new provider, which can take 60–120 days and creates a gap in Medicare billing capability that directly impacts post-close cash flow. Sellers should insist on a transition services agreement that allows them to continue billing under their provider number during the transition period, with clear revenue-sharing or fee arrangements. Both parties should engage healthcare regulatory counsel before LOI execution to map the specific accreditation and enrollment requirements in the relevant states.

Employee and Key Personnel Matters

Addresses the treatment of existing employees, any key person dependencies, and whether employment or non-solicitation agreements will be required from the seller or key staff members as a condition of close.

💡 In owner-operated DME businesses, the owner's personal relationships with referring physicians, hospital discharge planners, and key supplier contacts are often the most significant intangible asset. Buyers must identify these dependencies early and structure transition support obligations — formal introductions, joint customer calls, and agreed handoff timelines — directly into the purchase agreement rather than relying on informal goodwill. Non-compete terms of 3–5 years are standard in this sector given the sticky nature of referral relationships. Sellers should negotiate for non-compete provisions that are geographically scoped to the actual operating territory rather than broadly defined, and should ensure that any post-close consulting arrangements are compensated at fair market value.

Representations, Warranties, and Indemnification Framework

Outlines the key representations and warranties the seller will make at close and the indemnification obligations that will survive closing. In medical equipment supplier transactions, representations related to billing compliance, regulatory status, and inventory condition are particularly significant.

💡 Billing compliance representations are the highest-stakes indemnification exposure in any DME acquisition. Buyers should insist on a survival period of at least 36 months for these representations — consistent with the CMS reopening period for Medicare claims — and should negotiate for a specific indemnification basket or cap that applies to billing compliance claims separately from general business representations. Sellers should conduct an internal billing compliance review before LOI execution and be prepared to disclose any historical audit correspondence, even if resolved, rather than risk a breach of representation at close. Both parties should discuss representation and warranty insurance (RWI) as a mechanism to bridge indemnification gaps, particularly in transactions where the seller wants a clean exit.

Conditions to Close

Lists the conditions that must be satisfied before either party is obligated to proceed to final closing. In regulated healthcare transactions, conditions to close extend well beyond standard M&A requirements and must address regulatory milestones.

💡 Buyers should resist vague material adverse change (MAC) language and instead define specific thresholds — for example, a revenue decline of more than 15% from the trailing twelve-month baseline, loss of DMEPOS accreditation, or receipt of a CMS audit demand — that would trigger a MAC determination. Sellers should push to narrow MAC definitions to factors within their control and exclude industry-wide regulatory changes such as CMS reimbursement rate adjustments from the MAC definition. Both parties should agree on a long-stop date — typically 120–150 days from LOI execution — after which either party may terminate the LOI without penalty if closing conditions have not been satisfied.