Letter of Intent Template for Acquiring a Recycling Business

Parties and Transaction Overview

Identifies the buyer entity, seller entity, and the specific assets or equity being acquired. For recycling businesses, this section should clarify whether the transaction is structured as an asset purchase or equity purchase, and should specifically reference the business name, primary facility address, and the general nature of operations including material streams handled (e.g., ferrous metals, cardboard, plastics, e-waste).

💡 Sellers in the recycling industry frequently prefer equity sales to avoid triggering environmental indemnification obligations that attach more directly to asset purchases. Buyers should default to asset purchase structure to avoid inheriting unknown environmental liabilities, permit violations, or legacy contamination. Negotiate hard on this point early — changing the structure after LOI creates friction and renegotiation risk. If the seller insists on equity, ensure the LOI references a robust environmental representations and warranties section in the definitive agreement.

Proposed Purchase Price and Valuation Basis

States the proposed purchase price and explains the valuation methodology. Recycling businesses should be valued on normalized EBITDA that accounts for commodity price cycles — not peak-year revenue. This section should reference the EBITDA multiple range applied and explicitly acknowledge that commodity-adjusted trailing twelve-month or three-year average EBITDA was used as the basis.

💡 The single biggest valuation dispute in recycling acquisitions is whether to use peak-year or normalized EBITDA. Sellers will argue for peak commodity years; buyers must insist on a multi-year average that reflects the commodity cycle. Reference specific commodity indices (e.g., RISI for paper, AMM for metals) in the LOI so both parties are anchored to objective data. Also address whether real estate is included in the purchase price or structured as a separate sale-leaseback — owned facilities with valid environmental permits often carry significant value but also significant liability.

Deal Structure and Financing

Outlines how the purchase price will be funded, including SBA loan financing, seller notes, equity rollover, and earnout components. This section is critical for recycling acquisitions because financing structures must account for environmental contingencies that can affect SBA lender approval and for commodity volatility that may justify earnout mechanics.

💡 SBA lenders require a Phase I Environmental Site Assessment and will often require a Phase II if any recognized environmental conditions are flagged. Build this into your timeline and contingency language. For earnouts, tie commodity benchmarks to published third-party indices rather than the seller's internal pricing — this avoids disputes about whether commodity revenue shortfalls were caused by market conditions or by seller behavior post-close. Sellers will resist earnouts tied solely to commodity prices they cannot control; consider structuring earnout triggers around contract retention and volume metrics instead.

Real Property — Purchase or Lease

Addresses whether owned real estate will be acquired as part of the transaction or structured as a separate lease or sale-leaseback. For recycling businesses, this section must also reference environmental permit transferability and zoning approvals associated with the facility, as these are often as valuable — and as risky — as the property itself.

💡 Owned facilities with grandfathered environmental permits and difficult-to-replicate zoning approvals are among the most valuable assets in a recycling acquisition and represent a meaningful barrier to entry. However, they also carry the highest environmental liability risk. Do not close on real property without Phase II clearance if Phase I identifies any recognized environmental conditions. If the seller is retaining the real estate and leasing to you, negotiate a right of first refusal to purchase and ensure the lease term is long enough to justify your equipment and infrastructure investments.

Included and Excluded Assets

Enumerates which assets are included in the purchase price and which are excluded or separately negotiated. For recycling businesses, this must explicitly address trucks, balers, sorting equipment, processing machinery, commodity inventory on-site at closing, customer contracts, municipal permits, and trade names.

💡 Commodity inventory on-site at closing — baled cardboard, sorted metals, staged plastics awaiting shipment — can represent $50,000–$500,000 in value at a mid-sized recycling operation. Establish clearly in the LOI how this inventory will be valued (published index price at closing date) and whether it is included in the purchase price or treated as a separate purchase. Also confirm that all trucks and processing equipment will be conveyed free and clear of liens and that equipment leases, if any, are either assumed or terminated at closing.

Environmental Contingency

Establishes the buyer's right to conduct environmental due diligence and defines the conditions under which the buyer may terminate the LOI or renegotiate pricing based on environmental findings. This section is unique to industries with environmental exposure and is essential in recycling acquisitions given potential soil, groundwater, and stormwater contamination at processing facilities.

💡 Sellers sometimes resist Phase II assessments, fearing that findings will kill the deal or become public record. Frame the Phase II as a tool to get the deal done — not to kill it — by offering to share findings under a confidentiality agreement and to work collaboratively on remediation solutions. Establish a materiality threshold (e.g., $50,000 in estimated remediation costs) above which the buyer can renegotiate, so sellers understand that minor findings won't automatically derail the transaction. Also confirm whether any environmental insurance products are available to bridge the gap on legacy liability.

Contract Assignment and Customer Notification

Addresses the process for assigning municipal, commercial, and industrial service contracts to the buyer, including required consents and the timeline for customer notifications. This is a critical section for recycling businesses because municipal contracts often contain anti-assignment clauses that require government approval, and commercial clients may use the ownership change as an opportunity to renegotiate or exit.

💡 Municipal recycling contracts are the highest-value assets in many recycling acquisitions and the hardest to transfer. Engage with the municipal client early in the process — ideally with the seller present — to confirm the government entity's willingness to continue the relationship post-sale. Some municipalities require a formal re-bidding process upon ownership change, which can significantly affect business value. Build this risk into your purchase price and ensure your earnout structure reflects contract retention, not just revenue volume.

Due Diligence Period and Access

Defines the length of the due diligence period, the scope of access granted to the buyer, and the confidentiality obligations of both parties during the investigation period. For recycling businesses, due diligence should explicitly cover financial records, equipment condition, environmental assessments, contract files, and regulatory compliance history.

💡 Recycling due diligence typically takes longer than service business due diligence because of the layered nature of environmental, equipment, and contract review. Budget 60–90 days minimum and resist pressure to shorten this window. Request a structured data room from the seller that includes commodity revenue reports by material type and period — this is often not part of a standard financial package but is essential for accurate valuation modeling. Equipment appraisals from a qualified industrial appraiser (not just the seller's maintenance records) are strongly recommended given how quickly processing equipment depreciates in high-volume operations.

Exclusivity and No-Shop Provision

Grants the buyer an exclusive negotiating period during which the seller agrees not to solicit, entertain, or accept competing offers. Given the length of environmental and equipment due diligence in recycling acquisitions, a sufficient exclusivity period is critical.

💡 Sellers of established recycling operations — particularly those with long-term municipal contracts — often receive multiple inquiries from strategic acquirers and regional waste management roll-ups. Negotiate for at least 90 days of exclusivity given the length of environmental and equipment due diligence. Offer the seller a binding break-up fee structure in exchange for a longer exclusivity window — this demonstrates commitment and reduces seller anxiety about taking the business off the market. If the seller resists full exclusivity, negotiate for a right of first refusal on any competing offer received during the due diligence period.

Seller Transition and Non-Compete

Outlines the seller's obligations to support business transition post-closing and the geographic and temporal scope of the non-compete agreement. Owner dependency is a significant risk in recycling acquisitions where the founder manages key municipal and commercial relationships personally.

💡 In recycling businesses where the owner has personally managed municipal contract renewals and commercial client relationships for 10–30 years, a 12-month transition is often inadequate. Push for 18–24 months of structured transition support and tie a portion of any earnout or seller note to the seller's active participation in relationship handoffs. Non-compete geography should reflect actual service territory — a 50-mile radius is reasonable for a regional operation but may need to be expanded for businesses with broader geographic reach or commodity brokerage operations that are not geographically constrained.