Letter of Intent Template for Acquiring a Paving & Asphalt Business

Parties and Transaction Overview

Identifies the buyer entity, seller entity, and the legal structure of the proposed transaction. For paving acquisitions, this section should specify whether the deal is structured as an asset purchase or stock purchase, which has direct implications for equipment depreciation recapture, bonding assignment, and liability carve-outs related to prior job claims or OSHA violations.

💡 Asset purchase structure is strongly preferred by buyers in the paving space because it allows a stepped-up basis on equipment for depreciation purposes and limits inherited liability from prior contracts, mechanics liens, or environmental claims related to asphalt disposal. Sellers may push for a stock sale to reduce capital gains exposure and simplify bonding transfer — this creates room for negotiation on price or indemnification escrow. If SBA financing is involved, confirm early that the seller entity structure is eligible and that any real estate will be handled separately to avoid SBA eligibility complications.

Purchase Price and Valuation Basis

States the proposed total purchase price, the EBITDA or financial metric it is based on, and the implied multiple. For paving companies, this section must address how equipment is valued — whether at book value, fair market value per independent appraisal, or replacement cost — since equipment often represents 30–60% of total deal value in asset-heavy paving businesses.

💡 Equipment valuation is one of the most contested elements in paving deals. Sellers often use replacement cost (highest number) while buyers prefer orderly liquidation value (lowest number). Negotiate to use fair market value as the standard and specify who pays for the independent appraisal — typically the buyer during diligence. If a large portion of the fleet is aging or has deferred maintenance, build in a mechanism to reduce the equipment allocation based on appraisal findings. Working capital pegs require careful thought in seasonal businesses — normalize for off-season periods and exclude draws the seller took in the months before closing.

Deal Structure and Financing

Outlines how the Purchase Price will be funded, including the buyer equity injection, SBA loan proceeds, seller note, and any earnout component. Paving acquisitions frequently use a layered structure combining SBA 7(a) debt with a seller note and potentially an earnout tied to contract renewals or backlog conversion to bridge valuation gaps.

💡 SBA lenders will require the seller note to be on full standby for the first 24 months of the SBA loan in most cases — make sure the seller understands this before the LOI is signed, as it affects their cash flow expectations post-closing. Earnouts are particularly appropriate in paving when a significant portion of revenue comes from one or two municipal contracts up for renewal within 12 months of closing. Tie earnout milestones to objective, measurable metrics (contract dollar value retained, not subjective performance) and define the measurement period clearly. Sellers should push back on earnout structures where the buyer controls the bid submission process post-closing, as this creates a conflict of interest.

Asset Allocation

Specifies the categories of assets being acquired, with preliminary allocations for IRS Form 8594 purposes. For paving businesses, this section is critical because the allocation between equipment, customer lists, non-compete agreements, and goodwill has significant tax consequences for both buyer and seller.

💡 Buyers prefer to allocate more value to equipment (depreciable over 5–7 years) and non-compete agreements (amortizable over 15 years) rather than goodwill, which is also amortizable over 15 years but offers less early-period tax benefit. Sellers typically prefer goodwill treatment because it qualifies for long-term capital gains rates rather than ordinary income tax treatment applicable to equipment recapture under Section 1245. Expect this to be a negotiated compromise — sometimes a modest price concession from the buyer is exchanged for a seller-favorable allocation. Never leave allocation to be resolved post-closing; it creates disputes and IRS exposure.

Due Diligence Period and Access

Defines the length of the exclusive due diligence period, the scope of information to be provided, and the process for conducting equipment inspections, contract reviews, and employee interviews. Paving diligence has unique logistical considerations including field inspections of equipment and ongoing job sites.

💡 Forty-five days is the minimum for a paving business with a meaningful equipment fleet and active contracts — push for 60 days if the business has more than 10 pieces of major equipment or more than five active municipal contracts. Insist on in-person equipment inspection with a qualified heavy equipment mechanic, not just a review of maintenance logs. Request the last three years of bonding company correspondence to identify any claims or capacity reductions that could signal hidden liabilities. Employee interviews should be scoped carefully — in tight labor markets, premature disclosure to crew members can trigger departures before closing.

Exclusivity

Grants the buyer an exclusive negotiating period during which the seller agrees not to solicit, entertain, or accept competing offers. This is one of the most binding provisions of the LOI and is critical in paving acquisitions where diligence timelines are extended by equipment appraisals and bonding review.

💡 Sellers should not sign an LOI without understanding that exclusivity is effectively their commitment to take the business off the market. A typical paving acquisition LOI carries a 45–60 day exclusivity window tied to the due diligence period, with an option for the buyer to extend by 15 days if additional equipment appraisal time is needed. Sellers should negotiate a hard end date with automatic expiration — not an open-ended exclusivity — and a mutual termination right if the parties cannot agree on a final purchase price within 30 days of completing diligence.

Seller Transition and Non-Compete

Outlines the seller's post-closing obligations including a transition period, consulting arrangement, and non-compete/non-solicitation covenants. For paving businesses, this section is critical because the owner often holds key municipal relationships and may be the only person the foreman takes direction from.

💡 The geographic radius for non-competes in paving should reflect the actual service area — typically 25–50 miles for a local contractor, potentially larger if the business holds regional municipal contracts. SBA lenders require non-compete agreements as a condition of financing. The transition period length should be calibrated to crew dynamics — if the foreman already runs day-to-day operations independently, a 6-month transition may suffice. If the owner is the primary estimator and municipal relationship holder, push for 12 months full-time. Compensate sellers fairly for transition time; unpaid or undercompensated transition arrangements breed resentment and low engagement.

Representations and Conditions to Closing

Sets out the key representations the seller must make and the conditions that must be satisfied before the buyer is obligated to close. For paving businesses, conditions specific to equipment condition, contract assignment, bonding transfer, and key employee retention are essential.

💡 The bonding transfer condition is non-negotiable in paving — many municipal contracts require the contractor to maintain specific bonding thresholds, and a lapse can void contract rights. Begin bonding conversations with the seller's surety company early in diligence, not at the end. The key employee retention condition should name specific individuals (at minimum the lead foreman) and consider tying a portion of the seller's escrow to retention milestones at 90 and 180 days post-closing. Material adverse change clauses should specifically include loss of a top-3 customer contract or a significant OSHA violation as triggering events given their outsized impact on paving business value.

Confidentiality and Governing Law

Confirms that the terms of the LOI and all diligence information shared are confidential, and establishes the governing law for any disputes. This section typically incorporates or references a previously executed NDA.

💡 If an NDA was not executed before the LOI, include the confidentiality terms in full within the LOI body rather than incorporating by reference. Paving businesses in small markets are particularly sensitive to confidentiality breaches — news of a pending sale can trigger customer defections, employee anxiety, and competitor poaching of key crew members. Restrict disclosure to essential advisors and lender personnel only. The seller should also be bound by confidentiality regarding the buyer's financing structure and acquisition strategy, particularly if the buyer is a roll-up platform operating in adjacent markets.

Non-Binding Nature and Binding Provisions

Clarifies which sections of the LOI are legally binding and which are statements of intent. This distinction is essential to prevent either party from claiming breach if the deal does not close after diligence.

💡 Never allow the purchase price or deal structure terms to become binding in an LOI — you need flexibility to adjust based on diligence findings, equipment appraisal results, or contract review outcomes. The binding provisions (exclusivity, confidentiality, governing law) are sufficient to protect both parties during the diligence process. Sellers should resist any attempt by buyers to include binding representations in the LOI that could expose them to indemnification claims before a full legal review is complete.