A complete letter of intent framework for acquiring 1–5 unit pizza franchise operations — covering purchase price, franchisor approval contingencies, lease assignments, and SBA financing structures specific to the lower middle market.
A Letter of Intent (LOI) is the foundational document that bridges your initial offer and the final purchase agreement in a pizza franchise acquisition. For buyers targeting 1–5 unit operations generating $1M–$5M in combined revenue, the LOI establishes the economic terms, due diligence timeline, and critical contingencies before either party invests significant legal and advisory fees. Pizza franchise LOIs are more complex than standard business acquisitions because they must account for three-party dynamics: the buyer, the seller, and the franchisor. The franchisor's right of first refusal, transfer fee obligations, buyer approval requirements, and territory restrictions all must be addressed in the LOI before proceeding to definitive agreements. A well-structured LOI protects both parties, accelerates SBA lender review, and signals to the franchisor that you are a serious, qualified buyer. This guide walks through each LOI section with example language and negotiation notes calibrated to pizza franchise resale transactions in the $1M–$5M revenue range.
Find Pizza Franchise Businesses to AcquireParties and Transaction Structure
Identifies the buyer entity, seller entity, and the specific franchise units being acquired. Specifies whether the transaction is structured as an asset purchase or equity purchase. For pizza franchise resales, asset purchases are strongly preferred because they allow buyers to avoid inheriting undisclosed liabilities, reset depreciation schedules on equipment, and satisfy most SBA 7(a) lender requirements. List each store location by address, franchise unit number, and the specific assets included — POS systems, kitchen equipment, leasehold improvements, customer data, and local phone numbers.
Example Language
This Letter of Intent is entered into between [Buyer LLC], a [State] limited liability company ('Buyer'), and [Seller Name], an individual or [Seller Entity] ('Seller'), with respect to the proposed acquisition of substantially all operating assets of [Number] Pizza Franchise units operating under the [Franchise Brand] franchise system, located at [Address 1], [Address 2], and [Address 3] ('the Locations'). The transaction is intended to be structured as an asset purchase, subject to franchisor consent and SBA lender approval.
💡 Sellers operating under personal names rather than LLCs will require additional structuring guidance. Confirm with your franchise attorney whether the franchisor requires the acquiring entity to be a specific type of legal structure (e.g., no publicly traded entities, individual guarantee requirements). If acquiring multiple units, list each unit number explicitly — franchisors track transfer approvals at the unit level, not the operator level.
Purchase Price and Valuation Basis
States the proposed total purchase price, the valuation methodology, and how the price will be allocated across tangible assets, franchise rights, and goodwill. Pizza franchise resales in the lower middle market typically trade at 2.5x–4.5x store-level EBITDA. Clearly anchoring the price to a defined EBITDA figure protects buyers if financial restatements occur during diligence and gives sellers a clear basis for counter-negotiation. Price allocation matters for SBA lenders and tax purposes — expect negotiation on how much is allocated to equipment versus goodwill.
Example Language
Buyer proposes a total purchase price of $[Amount] ('Purchase Price'), representing approximately [X.Xx] times the combined trailing twelve-month store-level EBITDA of $[Amount] as represented by Seller across all Locations. The Purchase Price shall be allocated as follows: $[Amount] to furniture, fixtures, and equipment; $[Amount] to leasehold improvements; $[Amount] to franchise transfer and reacquisition rights; and $[Amount] to goodwill and going concern value. Final allocation is subject to third-party equipment appraisal and mutual agreement prior to closing.
💡 Sellers will push for higher goodwill allocation because it is taxed at capital gains rates. Buyers and SBA lenders prefer higher equipment and leasehold improvement allocations to maximize depreciable assets. Require the seller to provide at least 3 years of tax-filed returns and monthly P&Ls by location before finalizing any price. If Item 19 of the FDD shows materially different performance than seller-provided financials, preserve your right to renegotiate or walk.
Deal Structure and Financing Contingencies
Outlines how the purchase price will be funded, including the SBA 7(a) loan amount, seller note terms, buyer equity injection, and any earnout component. This section also includes an explicit SBA financing contingency protecting the buyer's deposit if lender approval cannot be obtained. For pizza franchise acquisitions, expect SBA loans to cover 80–90% of the acquisition cost, with buyer equity of 10–15% and an optional seller note of 5–10% to bridge any appraisal gap.
Example Language
The Purchase Price shall be funded through the following sources: (i) an SBA 7(a) loan of approximately $[Amount], representing [X]% of the Purchase Price, subject to lender underwriting and SBA authorization; (ii) a seller note of $[Amount] at [X]% annual interest, amortized over [36–60] months, subordinated to the SBA loan; and (iii) Buyer equity injection of $[Amount]. This LOI and Buyer's obligations hereunder are expressly contingent upon Buyer obtaining SBA lender commitment on terms satisfactory to Buyer within [45–60] days of execution of a definitive Purchase Agreement. Failure to obtain financing shall result in return of any good faith deposit to Buyer.
💡 SBA lenders will require the franchise to be on the SBA Franchise Directory (formerly the Franchise Registry). Confirm this before signing an LOI. Sellers are often resistant to seller notes subordinated to SBA debt because SBA standby requirements restrict their repayment during the loan term — negotiate note terms carefully. If an earnout is included, tie milestones to same-store sales thresholds (e.g., maintaining 95% of trailing 12-month average weekly sales) rather than EBITDA, which is more easily manipulated.
Franchisor Approval and Transfer Conditions
Addresses the franchisor's role in the transaction, including right of first refusal exercise period, transfer fee responsibility, buyer approval timeline, and any required training or net worth thresholds. This is the most pizza-franchise-specific section of the LOI and is frequently overlooked by buyers using generic templates. Failure to account for franchisor approval timelines has killed deals that were otherwise fully financed and negotiated.
Example Language
Buyer and Seller acknowledge that the proposed transaction is subject to the prior written approval of [Franchise Brand] ('Franchisor'), including without limitation: (i) Franchisor's waiver or non-exercise of any right of first refusal within the period specified in the Franchise Disclosure Document; (ii) Buyer's satisfactory completion of Franchisor's buyer application, financial qualification, and background review process; (iii) Buyer's agreement to execute Franchisor's then-current form of franchise agreement for each Location; and (iv) payment of applicable transfer fees, estimated at $[Amount] per unit, to be paid by [Seller/Buyer/Split] at closing. Seller agrees to notify Franchisor of the proposed transfer within [5] business days of LOI execution and to cooperate fully with Buyer's franchisor application process.
💡 Transfer fees range from $2,500 to $10,000+ per unit depending on the brand — negotiate responsibility in the LOI rather than leaving it to the definitive agreement. Ask whether the franchisor requires buyers to sign the current-form franchise agreement (which may have worse royalty terms than the seller's legacy agreements) or whether they will consent to assignment of existing agreements. Understand the franchisor's minimum net worth and liquidity requirements before submitting your LOI so you can confirm qualification.
Due Diligence Period and Access
Defines the length of the due diligence period, the documents and access the seller must provide, and buyer confidentiality obligations during the period. For pizza franchise acquisitions, due diligence should cover store-level P&Ls, the full FDD (including Item 19), lease agreements for all locations, franchise agreements, equipment condition reports, and employee rosters with compensation detail. A 30–45 day due diligence window is standard but may need extension if multiple locations are involved.
Example Language
Following execution of a definitive Purchase Agreement, Buyer shall have [45] calendar days ('Due Diligence Period') to complete its review of all business, financial, legal, and operational aspects of the Locations. Seller shall provide, within [5] business days of definitive agreement execution: (i) 36 months of monthly store-level P&L statements for each Location; (ii) 3 years of federal and state tax returns; (iii) current and all prior Franchise Disclosure Documents received from Franchisor; (iv) copies of all franchise agreements, addenda, and amendment letters; (v) all lease agreements, estoppel certificates, and landlord correspondence; (vi) equipment lists with age, condition notes, and maintenance records; and (vii) employee roster with tenure, role, and compensation. Buyer may terminate the agreement and receive a full refund of any deposit if due diligence reveals material adverse findings, in Buyer's sole discretion.
💡 Insist on Item 19 of the FDD even if the seller claims it is not applicable to their brand. Some franchisors make Item 19 disclosure optional — in that case, request audited or verified sales data directly from the franchisor's system. Pay close attention to comps: if same-store sales have declined over the past 12 months, negotiate a price reduction or earnout mechanism. Equipment appraisals are non-negotiable for SBA transactions and will directly affect lender collateral coverage.
Lease Assignment and Real Estate Contingencies
Addresses the assignment of existing location leases from seller to buyer, landlord consent requirements, and minimum remaining lease term conditions. Lease risk is one of the most common deal killers in pizza franchise resales. An unassignable lease or a landlord demanding a personal guarantee with onerous terms can terminate an otherwise viable transaction weeks before closing.
Example Language
The obligations of Buyer under this LOI and any definitive agreement are contingent upon: (i) each Location's lease being assignable to Buyer with landlord's written consent on terms no less favorable than currently in effect; (ii) each lease having a remaining term of no less than [5] years including renewal options at the time of closing; and (iii) Buyer not being required to provide a personal guarantee in excess of [12] months' base rent per location as a condition of lease assignment. Seller shall use commercially reasonable efforts to obtain landlord estoppel certificates and assignment consent letters prior to the end of the Due Diligence Period. If lease assignment cannot be obtained on acceptable terms for any Location, Buyer may elect to exclude that Location from the transaction with a corresponding reduction in Purchase Price of $[Amount] per excluded Location.
💡 Always order a lease abstract before signing an LOI if possible — many sellers share lease summaries that omit exclusivity restrictions, co-tenancy clauses, or assignment fee provisions. Confirm whether the franchisor is a party to the lease (as is common with some national brands) because franchisor lease consent may be required in addition to landlord consent. Landlords often use the assignment as leverage to extract rent increases or eliminate favorable terms — negotiate hard and retain a commercial real estate attorney.
Good Faith Deposit and Exclusivity
Establishes the buyer's good faith deposit amount, the escrow agent, conditions for deposit refund or forfeiture, and the exclusivity period during which the seller may not market the business or solicit other buyers. Exclusivity is critical for pizza franchise buyers who will invest significant time and capital in SBA underwriting, franchisor approval, and lease diligence.
Example Language
Upon execution of a definitive Purchase Agreement, Buyer shall deposit $[Amount] ('Good Faith Deposit') with [Escrow Agent] as evidence of Buyer's intent to close. The Good Faith Deposit shall be fully refundable if: (i) Buyer terminates the agreement during the Due Diligence Period for any reason; (ii) Buyer fails to obtain SBA financing commitment within the financing contingency period; (iii) Franchisor declines to approve Buyer or exercises its right of first refusal; or (iv) Seller fails to obtain assignable leases on the conditions set forth herein. In the event Buyer fails to close due to reasons within Buyer's control after all contingencies have been satisfied, the Good Faith Deposit shall be forfeited to Seller as liquidated damages. Seller agrees to grant Buyer an exclusive negotiating period of [60] days from LOI execution, during which Seller shall not solicit, entertain, or accept any competing offer for the Locations.
💡 Typical deposits for pizza franchise acquisitions range from $10,000 to $50,000 depending on deal size — size the deposit to demonstrate seriousness without overexposing capital before diligence is complete. Sellers will push for non-refundable deposits or limited refund windows. Resist this until all contingencies are clearly defined and reasonably achievable. Sixty days of exclusivity is reasonable given the typical SBA and franchisor approval timelines; request a 15-day extension right if those processes are still pending.
Representations, Warranties, and Closing Conditions
Summarizes the key representations seller will make in the definitive agreement, including accuracy of financial statements, absence of undisclosed liabilities, employee matters, and compliance with franchise agreement terms. In an LOI, this section signals what the buyer expects in the purchase agreement and flags any known issues that need to be resolved before closing.
Example Language
The definitive Purchase Agreement will include customary representations and warranties from Seller, including without limitation: (i) that the financial statements provided accurately reflect the operations of the Locations in all material respects; (ii) that Seller is in good standing under all franchise agreements with no material defaults, uncured violations, or pending franchisor notices; (iii) that there are no pending or threatened legal claims, employment disputes, or regulatory proceedings affecting any Location; (iv) that all sales tax, payroll tax, and tip reporting obligations are current; and (v) that no key employees have provided notice of resignation as of the date of closing. Seller representations shall survive closing for a period of [12–24] months with an aggregate indemnification cap of [10–20]% of the Purchase Price.
💡 Sellers resist broad survival periods and high indemnification caps — expect negotiation. Focus your hardest negotiation on financial statement accuracy and franchise agreement compliance, as these are the highest-probability areas for post-closing surprises in pizza franchise deals. Require specific reps around unreported cash sales, tip pooling practices, and third-party delivery reconciliation, as these are common areas of financial irregularity in restaurant operations. Consider an escrow holdback of 5–10% of purchase price for 12 months in lieu of a broad indemnification obligation.
Transfer Fee Allocation
Pizza franchise transfer fees range from $2,500 to $10,000+ per unit and can be a meaningful line item in multi-unit deals. Negotiate in the LOI whether fees are paid by buyer, seller, or split. Sellers often assume buyers pay transfer fees as a cost of acquisition; buyers often argue these are a seller exit cost. Establish this clearly upfront to avoid late-stage deal friction.
Seller Note Terms and SBA Standby Requirements
If a seller note is part of the deal structure, SBA lenders typically require the note to be on full standby (no principal or interest payments) for the first 24 months of the SBA loan. Sellers often resist this restriction. Negotiate the note amount, interest rate, and standby period early — a seller who is unwilling to accept standby terms can derail SBA financing at the commitment stage.
Franchisor Agreement Assignment vs. New Agreement Execution
Determine whether the franchisor will assign the seller's existing franchise agreements to the buyer or require execution of current-form franchise agreements. Current-form agreements often carry higher royalty rates, updated territorial restrictions, or new technology fee obligations. This distinction can materially affect the pro forma economics of the acquisition and must be resolved before the LOI is signed.
Same-Store Sales Earnout Thresholds
If an earnout is included, negotiate the measurement period, the specific sales metric (gross sales vs. net of third-party delivery commissions), and the frequency of measurement. Tie earnout payments to trailing average weekly unit volumes benchmarked against the 12 months prior to closing. Avoid EBITDA-based earnouts in pizza franchise deals because royalty reclassifications and food cost changes make EBITDA easily manipulable by either party post-close.
Manager Retention and Key Person Risk
Store managers are the operational backbone of semi-absentee pizza franchise ownership. Negotiate seller obligations to maintain existing management staffing through closing, and consider requiring seller to fund retention bonuses of 30–60 days of manager salary, held in escrow and paid to managers who remain employed 90 days post-close. This protects the buyer from inheriting a leadership vacuum during the critical transition period.
Equipment Condition and Franchisor Remodel Obligations
Franchisors periodically mandate store remodels, technology upgrades (POS, digital menu boards, delivery management systems), or equipment replacement cycles. Require the seller to disclose all pending franchisor capital requirements in writing and negotiate a purchase price adjustment or seller credit if remodel obligations are imminent within 24 months of closing. Failing to account for a $50,000–$150,000 remodel requirement is one of the most common post-closing surprises in pizza franchise acquisitions.
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Most pizza franchise acquisitions in the $1M–$5M revenue range take 90–150 days from LOI execution to closing. The longest-lead-time items are SBA lender underwriting (typically 45–60 days for commitment), franchisor buyer approval (30–90 days depending on the brand), and lease assignment from landlords (30–60 days). These processes can run concurrently but often reveal issues that require additional negotiation. Plan for a minimum of 90 days and build extension rights into your LOI to avoid losing your exclusivity window before all contingencies can be satisfied.
This is a negotiated term with no universal standard. Many franchisors require the franchisee (seller) to pay transfer fees as a condition of their franchise agreement, but sellers routinely negotiate for buyers to cover this cost as part of the acquisition. In the lower middle market, it is common for the parties to split transfer fees or for sellers to accept responsibility in exchange for a slightly higher headline purchase price. Clarify this in the LOI — leaving it to the definitive agreement is a common source of late-stage friction that can delay or kill deals.
Yes, SBA 7(a) loans are widely used for pizza franchise resale acquisitions and are one of the most common financing structures in the lower middle market. The franchise brand must appear on the SBA Franchise Directory, which most major pizza brands (Domino's, Pizza Hut, Papa Johns, Marco's) satisfy. SBA loans typically cover 80–90% of the total project cost including the purchase price, working capital, and certain closing costs. Buyers should expect to inject 10–15% equity and may supplement with a seller note for any gap between the SBA loan amount and the purchase price.
If the franchisor exercises its right of first refusal, the transaction with your buyer is terminated and the franchisor acquires the business on the same terms you negotiated. Your LOI should explicitly make your good faith deposit fully refundable in this scenario. Most major pizza franchise brands rarely exercise right of first refusal on individual unit sales but may do so for strategically important territories or multi-unit packages. Confirm the ROFR exercise window from the FDD before signing your LOI so you can calibrate your exclusivity and due diligence timeline accordingly.
This depends entirely on the franchisor and the terms of the seller's existing franchise agreement. Some franchisors allow buyers to assume the seller's existing agreement through assignment; others require buyers to execute the franchisor's current-form agreement, which may include updated royalty rates, technology fees, or modified territorial terms. This distinction is material to your acquisition economics and must be confirmed before LOI execution. Request a copy of the current-form franchise agreement from the franchisor early in the process, and have a franchise attorney compare it to the seller's existing agreement to identify any material differences.
Structure earnouts around gross sales per unit measured as average weekly unit volumes, benchmarked against the trailing 12 months prior to closing. Define gross sales clearly in the LOI — specify whether third-party delivery platform commissions are deducted before or after the threshold calculation, as this can meaningfully affect payout mechanics. Set measurement periods quarterly rather than annually to provide faster feedback and reduce the seller's incentive to manage timing. Avoid EBITDA-based earnouts for pizza franchises because franchisor-mandated cost changes, royalty structures, and food cost fluctuations make EBITDA difficult to verify and easy to dispute post-closing.
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