Letter of Intent Template for Acquiring a Specialty Retail Business

Parties and Transaction Overview

Identifies the buyer entity, the seller, and the target business. Establishes whether this is an asset purchase or stock purchase, which in specialty retail almost always defaults to an asset purchase to avoid inheriting unknown lease obligations, supplier disputes, or legacy sales tax liabilities.

💡 Confirm the legal entity structure of the seller's business before drafting. Many owner-operated specialty retailers operate as sole proprietorships or single-member LLCs, which simplifies asset transfer but may complicate vendor agreement assignments. If the seller insists on a stock sale for tax reasons, consult your M&A attorney on representations and warranties insurance and legacy liability exposure.

Purchase Price and Deal Structure

States the proposed total enterprise value, the allocation between goodwill and hard assets including inventory, and the financing structure. Specialty retail deals in the $1M–$5M revenue range are frequently SBA 7(a) financed, which requires the seller note to be on full standby during the SBA loan term. The purchase price must clearly separate the inventory component since inventory is typically valued at cost or appraised value at closing — not included in the goodwill multiple.

💡 Inventory valuation is one of the most contested items in specialty retail LOIs. Sellers often overvalue slow-moving or aged SKUs at retail rather than cost. Negotiate the right to exclude inventory older than 12–18 months or apply a markdown factor to items with no sales velocity in the prior year. If the business carries significant inventory (greater than $200K), consider engaging an independent inventory appraisal firm rather than relying solely on the seller's perpetual inventory system.

Exclusivity Period

Grants the buyer an exclusive negotiating period during which the seller agrees not to solicit, entertain, or accept competing offers. This is essential in specialty retail where multiple buyers — including strategic roll-up platforms and retiring operators — may be actively pursuing the same niche store.

💡 60 days is standard for a lower middle market specialty retail deal. If you are pursuing SBA financing, build in a 90-day exclusivity provision given SBA lender timelines. Sellers represented by experienced brokers will push back on anything beyond 60 days — counter by offering a 30-day initial period with a 30-day extension tied to SBA lender engagement confirmation.

Due Diligence Access and Scope

Outlines the scope of the buyer's due diligence investigation and the seller's obligation to provide timely access to financial records, lease documents, vendor contracts, inventory reports, and customer data. Specialty retail due diligence has unique elements including inventory aging reports, lease CAM reconciliations, and supplier agreement reviews.

💡 Push for POS data access early — sales velocity by SKU is critical for validating the inventory valuation methodology and identifying which product categories are growing versus declining. Many specialty retailers have never exported this data in a usable format; budget time for data cleanup. If the seller resists sharing customer data pre-LOI, request an NDA addendum with specific data-use restrictions.

Lease Assignment and Landlord Consent

Addresses the critical issue of lease transferability, which is one of the most common deal-killers in specialty retail acquisitions. The LOI should make landlord consent to lease assignment a condition precedent to closing and specify the timeline for obtaining that consent.

💡 Review the lease before submitting the LOI — some retail leases contain anti-assignment clauses that require landlord consent and give landlords the right to recapture the space rather than consent. If the lease has fewer than three years remaining with no renewal option, treat this as a major value risk and either negotiate a price reduction or require the seller to secure a new lease extension before the LOI is executed. CAM charges and percentage rent clauses should be reviewed carefully for impact on buyer's pro forma.

Vendor Agreements and Supplier Transferability

Addresses the transferability of key vendor relationships, exclusivity agreements, and supplier contracts that often represent significant competitive advantages for specialty retail businesses. Many owner-operators have informal or handshake agreements with distributors that may not survive a change of ownership.

💡 Identify the top five vendors by purchase volume and confirm transferability before moving to the definitive agreement. In specialty retail, exclusive territory agreements or preferred pricing arrangements are common and may be tied to the individual owner's relationship with a manufacturer's rep. Plan introductory calls with key vendor contacts during the due diligence period, ideally with the seller present, to begin building the relationship before closing.

Non-Compete and Transition Agreement

Establishes the seller's commitment not to compete with the business after closing and the terms of the seller's post-closing transition support. For owner-operated specialty retailers, the seller's product knowledge, vendor relationships, and customer trust are deeply embedded in the business — a structured transition is essential to protecting the buyer's investment.

💡 In niche specialty retail, three years and 25 miles is a reasonable non-compete scope. If the seller has a strong personal brand or social media following tied to the business, negotiate rights to the seller's business-related social accounts and email lists. For sellers who are genuinely passionate about the product category, a consulting arrangement beyond the initial 90 days — paid on an hourly basis — can be more effective than a rigid transition period.

Conditions to Closing

Lists the material conditions that must be satisfied before the buyer is obligated to close the transaction. Conditions in specialty retail acquisitions commonly include landlord consent, SBA loan approval, inventory count reconciliation, and confirmation that no material adverse change has occurred in the business.

💡 Define 'material adverse change' explicitly — for specialty retail, a decline of more than 10–15% in monthly revenue or the loss of a top-three vendor relationship should trigger the MAC clause. Sellers will push to narrow MAC definitions; buyers should resist. The SBA financing condition is non-negotiable if you are using SBA 7(a) funding — make sure your lender has issued a pre-qualification letter before submitting the LOI to strengthen your credibility with the seller.

Confidentiality

Reinforces the mutual confidentiality obligations of both parties and confirms that all information shared during due diligence will be used solely for the purpose of evaluating and completing the Transaction.

💡 Specialty retail employees, especially long-tenured staff, are highly sensitive to ownership change rumors. Premature disclosure can trigger employee departures that damage the business before closing. Emphasize to the seller the importance of limiting disclosure to only those individuals essential to the transaction. If an NDA was signed prior to the LOI, reference and reaffirm it rather than creating conflicting confidentiality obligations.

Non-Binding Nature and Binding Provisions

Clarifies which provisions of the LOI are legally binding and which are expressions of intent. In standard practice, only the exclusivity, confidentiality, and governing law sections are binding — the purchase price, structure, and conditions are non-binding until a definitive purchase agreement is executed.

💡 Sellers sometimes mistakenly believe the LOI locks in the purchase price permanently. Educate the seller upfront that the purchase price in the LOI is subject to adjustment based on due diligence findings, final inventory count, and definitive agreement negotiations. This prevents friction later when inventory adjustments or lease issues cause price renegotiation — which is common in specialty retail deals.