Letter of Intent Template for Acquiring a Social Media Agency

Parties and Transaction Structure

Identifies the buyer entity, seller entity, and the legal form of the transaction — typically an asset purchase for social media agencies to allow the buyer to cherry-pick contracts and exclude unknown liabilities. Stock purchases are used when the agency holds valuable platform certifications, long-term client contracts that are non-assignable, or when the seller seeks capital gains treatment.

💡 Sellers often prefer a stock sale for tax efficiency, but buyers of social media agencies strongly favor asset purchases to avoid inheriting undisclosed liabilities, disputed contractor classifications, or platform policy violations. If the seller insists on a stock sale, the buyer should demand expanded reps and warranties coverage and consider representation and warranty insurance. Confirm whether any key client contracts contain anti-assignment clauses that would require client consent in an asset sale — this is common in enterprise and healthcare vertical retainer agreements.

Purchase Price and Valuation Methodology

States the total consideration, the EBITDA basis upon which the multiple is applied, and how adjusted EBITDA was calculated — including add-backs for owner compensation above market rate, personal expenses run through the business, and one-time costs. For social media agencies, revenue quality adjustments distinguishing retainer revenue from project-based or ad spend pass-through are critical inputs to the valuation.

💡 The single most contested issue in social media agency LOIs is how EBITDA is adjusted. Sellers will push to add back discretionary expenses aggressively; buyers should counter by requiring that all add-backs be documented with supporting financials. Ad spend pass-through managed on behalf of clients inflates gross revenue but contributes zero margin — ensure the LOI specifies that valuation is based on net agency revenue (retainer and service fees only). If the trailing twelve months include a large one-time project that inflated revenue, buyers should insist on a normalized run-rate calculation or a revenue quality weighting that discounts project revenue at a lower multiple than retainer revenue.

Earnout Structure and Client Retention Mechanics

Defines the contingent portion of the purchase price tied to post-close business performance, most commonly structured around client retention, revenue continuity, or EBITDA targets over a 12–24 month earnout period. Earnouts are nearly universal in social media agency acquisitions given the people-dependent, relationship-driven nature of revenue.

💡 Earnout disputes are the leading source of post-close litigation in agency M&A. Sellers should negotiate hard for: (1) objective, formula-based earnout metrics rather than EBITDA targets the buyer can influence through expense allocation; (2) anti-sandbagging provisions preventing the buyer from deliberately managing the business to miss earnout thresholds; (3) a clear definition of which clients count as 'retained' versus churned due to buyer-initiated changes in service scope or pricing. Buyers should ensure the earnout period does not extend beyond 24 months and that the seller has contractual obligations to support client transitions during the measurement window.

Seller Note and SBA Financing Provisions

Addresses any seller-carried financing, its subordination to senior debt, and SBA lender requirements if the buyer is using SBA 7(a) financing. SBA loans are common in social media agency acquisitions under $5M and impose specific rules on seller note structure and standby periods.

💡 If SBA financing is being used, the seller note standby provision is non-negotiable — the SBA requires it and lenders will not waive it. Sellers should confirm that the standby period is limited to principal payments only, as some structures allow interest accrual during standby. Buyers should lock in the SBA financing contingency deadline in the LOI to avoid open-ended exclusivity obligations if the loan process stalls. Note that SBA lenders will independently review client concentration and contract quality, so any revenue concentration issues should be disclosed to the buyer before the LOI is signed to avoid deal re-trades at the SBA underwriting stage.

Exclusivity and No-Shop Period

Grants the buyer an exclusive negotiation window during which the seller cannot solicit or entertain competing offers. Critical for buyers conducting social media agency due diligence, which requires access to sensitive client lists, contract terms, and team compensation data.

💡 Sixty days is the market standard for lower middle market agency acquisitions, though complex deals with SBA financing often require 75–90 days given lender processing timelines. Sellers should resist open-ended exclusivity and negotiate a hard stop with an automatic termination right if the buyer fails to deliver a definitive purchase agreement draft within the exclusivity window. Buyers should use the exclusivity period aggressively — request the due diligence data room within the first week and begin client contract review and team interviews as early as possible to avoid last-minute surprises that force a price renegotiation.

Due Diligence Scope and Access

Outlines the specific due diligence access the buyer requires and the seller's obligations to provide information. For social media agencies, due diligence must cover client contract quality, platform certifications, team structure, and technology stack — all of which require confidential access to sensitive business data.

💡 Sellers should request a mutual NDA before sharing any client names, contract values, or team compensation data — even after LOI execution. Require that the buyer sign a non-solicitation agreement covering employees and clients identified during due diligence as a condition of data room access. Buyers should prioritize client contract review in week one: confirm whether contracts are monthly auto-renewing, annual with auto-renewal, or true month-to-month, as this dramatically affects the earnout risk profile and post-close churn probability. Platform certifications held in the seller's name may need to be reapplied for under the buyer entity — confirm this timeline with Meta and other platforms before committing to a close date.

Key Person and Transition Provisions

Addresses the seller's post-close role, compensation, and obligations to transition client relationships and institutional knowledge to the buyer's team. Key person risk is the defining operational risk in social media agency acquisitions and must be directly addressed in the LOI.

💡 This section is where many social media agency deals break down post-close. Buyers should resist vague transition obligations and instead build a specific, time-bound transition checklist into the definitive agreement — including deadlines for transferring ad account admin access, content calendar handoffs, and client introductions. Sellers who are genuinely ready to exit should proactively demonstrate that team leads already have established client relationships, which reduces the required transition period and increases the upfront cash component of the deal. A 6-month transition is reasonable if the team is self-sufficient; 12–18 months may be required if the founder is the primary contact on more than 50% of accounts.

Non-Compete and Non-Solicitation

Restricts the seller from competing with the acquired agency or soliciting its clients and employees following the close. Critical for protecting the goodwill premium paid in social media agency acquisitions, where the seller could easily restart a competing agency or re-engage departed clients.

💡 Three years is standard and generally enforceable in most jurisdictions for business sale non-competes (distinct from employment non-competes, which face higher scrutiny). Sellers should negotiate carve-outs for: (1) passive investment in unrelated businesses, (2) personal social media consulting for non-competing verticals, and (3) board advisory roles that do not involve direct service delivery. Buyers should ensure the non-solicitation of employees clause has teeth — losing two or three senior account managers to the seller post-close can be as damaging as losing clients. If the seller has already identified a specific vertical or new business idea they want to pursue, discuss it openly now and carve it out rather than letting it become a breach claim later.

Confidentiality and Break-Up Provisions

Reinforces confidentiality obligations during the LOI period and establishes any break-up fee or cost reimbursement obligations if either party terminates the process without cause.

💡 Most LOIs in the lower middle market are non-binding on price and structure but binding on exclusivity, confidentiality, and occasionally a break-up fee. Sellers who have invested in CPA-reviewed financials and legal preparation for the transaction are justified in requesting a modest break-up fee ($15,000–$30,000) to deter tire-kickers. Buyers should push back on any break-up fee that exceeds actual documented costs. Both parties should confirm the NDA was executed before any client names or financial details were shared — a common oversight when deals are sourced through brokers or informal networks.