Letter of Intent Template for Acquiring an Executive Search Firm

Parties and Transaction Overview

Identifies the buyer, seller, and the legal entity or assets being acquired. Specifies whether the transaction is structured as an asset purchase or stock purchase, which has significant implications for client contract transferability, recruiter agreements, and liability assumption in executive search firms.

💡 Asset purchase structures are strongly preferred by buyers in executive search acquisitions because they allow selective assumption of liabilities and provide a stepped-up tax basis. Sellers, particularly those operating as S-Corps or LLCs, may push for a stock sale to achieve capital gains treatment on the full proceeds. Expect significant negotiation here. If a stock sale is agreed upon, buyers should require expanded representations and warranties around undisclosed liabilities, pending client disputes, and recruiter compensation obligations. Note that SBA 7(a) financing, which is available for executive search firm acquisitions, generally accommodates asset purchase structures more cleanly.

Purchase Price and Valuation Basis

States the proposed total purchase price, the valuation methodology applied, and the assumed EBITDA or seller's discretionary earnings figure on which the multiple is based. For executive search firms, this section must clearly define what trailing revenue and earnings period is being used and how owner compensation add-backs are treated.

💡 Executive search firms in this revenue range typically trade at 3.0x–5.5x EBITDA, with the upper end reserved for firms demonstrating a high percentage of retained search revenue (typically 50%+), diversified billers, and documented niche vertical expertise. Sellers who have operated on a cash basis with informal expense practices will face scrutiny during QoE review, and buyers should budget for a $15,000–$30,000 quality of earnings engagement before finalizing the purchase price. Sellers should resist broad language allowing the buyer to retroactively restate EBITDA after close using due diligence findings — establish a clear cut-off date for price adjustments.

Deal Structure and Payment Terms

Outlines how the purchase price is divided between cash at closing, a seller carry note, and any earnout component. In executive search transactions, earnouts tied to retained revenue, total billings, or individual biller production are extremely common and must be precisely defined to avoid post-close disputes.

💡 The earnout is the most contested element in executive search acquisitions. Buyers want earnouts tied to EBITDA or net revenue to protect against cost inflation post-close; sellers prefer gross revenue targets because they have more control over billings than over expenses managed by the new owner. A reasonable compromise is a revenue-based earnout with a floor — for example, 80% of prior-year revenue triggers partial payment, 100% triggers full payment. Sellers should also negotiate for anti-sandbagging provisions preventing the buyer from intentionally starving the business of resources to suppress earnout payments. If a seller carry note is included, sellers should insist on cross-default provisions that accelerate the note if the buyer defaults on the earnout.

Key-Man and Recruiter Retention Provisions

Addresses the single most significant risk factor in executive search acquisitions: revenue concentration in one or a few senior billers or founding partners. This section establishes employment or consulting commitments for the seller and defines conditions under which deferred consideration is reduced if key personnel depart.

💡 Sellers often resist having their earnout tied to the departure of employees they no longer control post-close. This is a legitimate concern. Buyers should narrow the carve-out to voluntary departures initiated by the biller rather than terminations or role changes driven by the buyer. Sellers should push for a carve-out that protects earnout payments if a key biller departs because the buyer materially changes their compensation, title, or responsibilities. Both parties benefit from requiring all recruiters to sign updated employment agreements with clear non-solicitation and non-compete provisions before close — this protects the business regardless of who owns it.

Due Diligence Scope and Timeline

Defines the due diligence access period, the specific information categories the buyer will review, and the process for requesting and delivering documentation. In executive search, due diligence must specifically address revenue quality, client concentration, recruiter attribution, and CRM/ATS data integrity.

💡 Sellers in executive search are often protective of candidate and client data, fearing that a buyer who does not close will walk away with proprietary network intelligence. Address this by executing a robust NDA with specific provisions covering candidate and client data before any CRM or ATS access is granted. Buyers should also insist on a data room structure rather than live database access during diligence. If the seller's books are cash-basis, budget extra time for normalization — a quality of earnings report is highly recommended for any deal above $1.5M in purchase price.

Exclusivity and No-Shop Period

Establishes the period during which the seller agrees not to solicit, negotiate, or accept offers from competing buyers while the LOI is in effect. Standard practice in lower middle market M&A.

💡 Sixty days is a reasonable exclusivity window for an executive search firm acquisition of this size. Sellers should resist exclusivity periods exceeding 75–90 days without a clear closing date milestone. If due diligence extends beyond the exclusivity period through no fault of the seller, sellers should retain the right to re-engage other interested parties. Buyers who have identified a strong target with multiple interested parties may offer a small, refundable exclusivity deposit of $25,000–$50,000 to secure the seller's commitment during the exclusivity period.

Representations and Warranties Preview

Summarizes the key representations and warranties that Seller will be expected to make in the definitive agreement, signaling to both parties the risk areas that will require the most negotiation and indemnification coverage.

💡 Client contract transferability is the most critical representation in executive search acquisitions. Buyers should conduct independent legal review of all active client master service agreements and fee agreements to identify change-of-control clauses, anti-assignment provisions, or exclusivity terms that could impair the value of the business post-close. Sellers who have operated on informal handshake agreements with long-standing clients should proactively formalize written fee agreements before going to market — the absence of written contracts significantly reduces perceived deal quality and negotiating leverage.

Conditions to Closing

Lists the specific conditions that must be satisfied before the transaction can close, including third-party consents, employment agreement execution, and financing contingencies.

💡 The material adverse change clause is particularly important in executive search because a single senior biller departure or major client loss between signing and closing can materially impair business value. Define MAC triggers specifically — loss of any client representing more than 15% of annual revenue, departure of any Key Biller, or a decline in trailing three-month revenue exceeding 20% compared to the same period in the prior year are reasonable thresholds. Sellers should push back on overly broad MAC definitions that give buyers optionality to exit the deal without legitimate business justification.