Letter of Intent Template for Acquiring a Promotional Products Company

1. Parties and Transaction Overview

Identifies the buyer, seller, and business entity being acquired. Establishes whether the deal is structured as an asset purchase or stock purchase — a critical choice in promotional products deals where ASI/PPAI memberships, supplier agreements, and customer contracts may be entity-specific.

💡 Asset purchases are preferred by most buyers in this industry because they allow for a step-up in tax basis and limit assumption of unknown liabilities. However, sellers often prefer stock sales for capital gains treatment. If ASI or PPAI membership is held at the entity level and non-transferable in an asset deal, buyers should negotiate a parallel membership application timeline as a condition of close. Clarify upfront whether the transaction includes the seller's personal book of contacts or only those documented in the company CRM.

2. Purchase Price and Valuation Basis

States the proposed total consideration and the valuation methodology used. Promotional products companies in the $1M–$5M revenue range typically trade at 2.5x–4.5x Seller's Discretionary Earnings (SDE) or EBITDA, depending on customer diversification, recurring revenue from company store programs, and the degree of owner dependency.

💡 Sellers with strong company store programs or exclusive supplier relationships should argue for multiples at the higher end of the 3.5x–4.5x range, as these create genuine switching costs and recurring revenue. Buyers encountering heavy owner dependency in sales — where the founder personally manages the top five accounts — should apply a discount or shift more consideration into an earnout. Always verify EBITDA add-backs carefully; owner travel, personal vehicle use, and family payroll are common in this industry and must be documented to survive SBA underwriting scrutiny.

3. Deal Structure and Payment Terms

Outlines how the purchase price will be funded, including the mix of buyer equity, SBA financing, seller note, and any earnout component. Most promotional products acquisitions in this range are SBA 7(a) financed, with sellers frequently asked to carry a subordinated note to satisfy lender alignment requirements.

💡 SBA lenders will require the seller note to be on full standby during the SBA loan repayment period, which sellers sometimes resist. Frame this as standard practice, not a negotiating tactic. If the seller pushes back on a seller note, consider increasing the earnout cap proportionally. For deals where customer concentration is a known risk — e.g., one corporate account represents 30%+ of revenue — it is appropriate and defensible to tie a meaningful portion (15–25%) of total consideration to an earnout rather than cash at close.

4. Earnout Structure and Client Retention Milestones

Defines the specific performance metrics that trigger earnout payments post-close. In promotional products businesses, earnouts most commonly tied to gross revenue retention, reorder rates from top accounts, and the continuation of company store or managed merchandise programs.

💡 Sellers should push for earnout metrics they can influence during a transition consulting period — pure revenue targets after the seller has departed are harder to defend. Buyers should define 'gross revenue' clearly to exclude one-time large orders that inflate the baseline. If the business has one or two whale accounts, consider naming them explicitly in the earnout calculation rather than using a percentage of total revenue, which can be gamed by replacing lost revenue with low-margin bulk orders. Both parties should agree on who has access to books and records for earnout verification.

5. Owner Transition and Non-Compete Agreement

Specifies the seller's post-close involvement, including a consulting or employment period for client introductions and supplier relationship handoffs, and the geographic and temporal scope of the non-compete covenant.

💡 The transition consulting period is often more valuable than buyers realize in this industry — relationships are personal, and a cold handoff frequently results in client attrition. Sellers who are eager for a clean break should be offered a structured exit with a higher upfront consulting fee rather than eliminating the transition period. Non-compete geography should reflect the actual service area of the business; national distributors may require a broader restriction. SBA lenders will require non-compete agreements as a condition of loan approval, so this is non-negotiable in SBA-financed deals.

6. Due Diligence Period and Access

Establishes the length of the exclusivity and due diligence window, and specifies what materials the seller must provide for buyer review. Promotional products deals require focused diligence on customer concentration, supplier agreements, and CRM data integrity.

💡 45 days is often tight for SBA-financed deals given lender processing timelines; request 60 days if possible and build in a 15-day extension provision tied to lender requirements. Sellers should require a signed NDA before releasing client lists or CRM data — customer relationships are the core asset and premature disclosure can harm the business if the deal falls through. Buyers should request margin reports by client from the outset; blended gross margins in promotional products typically run 25–40%, but individual account margins can vary dramatically.

7. Exclusivity and No-Shop Provision

Prevents the seller from marketing the business or entertaining other offers during the due diligence period, protecting the buyer's investment of time and resources.

💡 60-day exclusivity is standard for SBA deals. Sellers may push for 30 days if they have other interested buyers; buyers should counter by demonstrating SBA pre-qualification or proof of funds to justify the longer window. If a broker is involved, confirm the no-shop provision applies to the broker as well. Buyers who have paid for a quality of earnings report or third-party valuation have stronger grounds for requesting longer exclusivity.

8. Conditions to Closing

Lists the specific conditions that must be satisfied before the transaction can close, including financing approval, supplier agreement transfers, and key employee retention.

💡 The supplier agreement transfer condition is frequently underestimated. Some promotional products suppliers will not extend preferred pricing to a new owner without a separate credit application and minimum purchase commitment. Buyers should contact top suppliers directly during due diligence — not after closing — to confirm pricing tier continuity. The material adverse change clause should specifically call out loss of any single client representing more than 15% of trailing revenue as a qualifying MAC event, given the customer concentration risks common in this industry.

9. Confidentiality and Governing Law

Reaffirms the parties' confidentiality obligations and establishes the jurisdiction and governing law for any disputes arising from the LOI or the transaction.

💡 If a separate NDA was signed prior to the LOI, confirm that this section supersedes or is consistent with that earlier agreement. Sellers should ensure the confidentiality clause explicitly prohibits buyers from contacting employees, clients, or suppliers without prior written consent during due diligence — unauthorized contact with a key corporate account during a live deal can create significant disruption.

10. Non-Binding Nature and Binding Provisions

Clarifies which provisions of the LOI are legally binding and which are expressions of intent subject to definitive agreement, protecting both parties during the negotiation period.

💡 Courts in most jurisdictions have found that sufficiently specific LOI language can create binding obligations even in sections labeled non-binding. Avoid language like 'Buyer agrees to acquire' or 'Seller agrees to sell' in non-binding sections — use 'intends to' or 'proposes to' instead. Both parties should have legal counsel review the LOI before execution, particularly if the deal involves a complex earnout or multi-party ownership structure.