Letter of Intent Template for Acquiring a Stucco & Plastering Contractor

Parties and Transaction Overview

Identifies the buyer entity, seller entity, and the legal structure of the proposed transaction. For stucco and plastering acquisitions, this almost always takes the form of an asset purchase rather than a stock purchase, due to liability exposure from prior construction defect claims, lien history, and worker classification risk.

💡 Sellers in the plastering trades often resist asset purchase structures because they believe a stock sale is simpler. Buyers should clearly explain that asset purchases protect against inheriting unknown construction defect claims, unresolved mechanic's liens, and worker misclassification liabilities — all of which are meaningful risks in this industry. Most SBA lenders also strongly prefer asset purchase structures for specialty trades acquisitions.

Purchase Price and Valuation Basis

States the proposed total enterprise value, the valuation methodology used, and the allocation of value across tangible assets, goodwill, and non-compete consideration. Stucco businesses are typically valued at 2.5x–4x trailing twelve-month Seller's Discretionary Earnings, with tangible assets valued separately.

💡 Many stucco contractor sellers have informal bookkeeping and may present add-backs that are difficult to verify. Buyers should anchor the LOI price to documented SDE with a clause allowing price adjustment if due diligence reveals material discrepancies. Sellers should be prepared to justify discretionary add-backs such as personal vehicle expenses, owner health insurance, and family payroll with documentation. The allocation between goodwill and tangible assets has tax implications for both parties — buyers prefer more tangible asset value for depreciation; sellers often prefer goodwill for capital gains treatment.

Deal Structure and Financing

Outlines how the purchase price will be funded, including the equity down payment, SBA loan amount, and any seller note or earnout component. SBA 7(a) financing is common in stucco contractor acquisitions given SDE levels and asset backing.

💡 SBA lenders underwriting stucco contractor acquisitions will scrutinize customer concentration, owner dependency, and equipment condition. Sellers should understand that the seller note is typically required to be on standby for 24 months per SBA guidelines. Buyers should confirm whether the lender requires the seller to remain on as a consultant during the standby period. A seller note of 10–15% of purchase price is common in this sector and helps bridge valuation gaps when the seller's SDE is partially undocumented.

Earnout Provision

Defines any performance-based contingent consideration tied to post-close revenue or gross profit retention. Earnouts are common in stucco acquisitions where significant revenue is tied to the seller's personal contractor relationships with GCs, HOAs, or property managers.

💡 Earnouts are a useful bridge when buyer and seller disagree on valuation due to owner-dependent revenue. Sellers should insist on clearly defined earnout calculation mechanics, access to monthly revenue reports, and a dispute resolution process. Buyers should cap the earnout at a level that does not inflate total consideration beyond the SBA loan ceiling. If commercial GC relationships are the primary revenue driver, the earnout baseline should reflect only those accounts the seller actively transitions to the buyer — not all company revenue.

Assets Included and Excluded

Itemizes the tangible and intangible assets being transferred and explicitly carves out any assets the seller intends to retain. In stucco contractor acquisitions, the equipment list, vehicle fleet, and material inventory are critical inclusions that must be documented precisely.

💡 Equipment condition is a significant risk in stucco contractor acquisitions. Buyers should require a physical inspection of all vehicles and equipment prior to LOI signing or immediately following, with a right to adjust purchase price if inspection reveals deferred maintenance or unreported deficiencies. Vehicles over 150,000 miles or equipment over 10 years old should be flagged for independent valuation. Material inventory on active job sites should be valued at cost and confirmed against open project schedules.

Contractor Licenses, Bonding, and Insurance

Addresses the transfer or reissuance of required contractor licenses, the continuation of bonding, and the replacement of general liability and workers' compensation insurance policies — which are mandatory for legal operation post-close.

💡 License transferability is the single most operationally critical issue in any specialty trades acquisition. In most states, contractor licenses are not transferable and the buyer must qualify independently — which can take 30–90 days or longer. Some buyers use a temporary operating agreement allowing the seller to remain the license of record during a defined transition window, but this creates liability exposure for the seller and should be time-limited and carefully drafted. Buyers should confirm license requirements in every jurisdiction where the business operates before finalizing the LOI.

Employee and Crew Retention

Establishes expectations for the retention of key employees, particularly licensed journeymen, lead plasterers, and foremen whose skills and relationships are essential to continued operations. Losing even one experienced stucco crew following an acquisition can materially impair production capacity.

💡 Skilled stucco applicators and lead plasterers are genuinely scarce and often have loyalty to the founding owner rather than the business entity. Buyers should conduct informal conversations with key crew members during due diligence — ideally facilitated by the seller — to gauge retention risk. If a critical foreman or lead plasterer signals intent to leave, buyers should consider negotiating a retention bonus payable 6 months post-close as part of the overall deal budget. Worker classification should also be verified — misclassification of employees as independent contractors is a material risk in the plastering trades.

Customer and Contract Transition

Outlines the process for transitioning key customer relationships, active contracts, and project backlog from seller to buyer, including the seller's role in introductions and the handling of contracts that require client consent to assign.

💡 Customer concentration is the most common value risk in stucco contractor acquisitions. If one GC or property management company represents more than 30–40% of revenue, buyers should negotiate an earnout or price reduction mechanism triggered by that customer's departure within 12 months post-close. Sellers should prepare warm introduction letters or joint calls to key accounts prior to closing to maximize relationship continuity. LOIs should also confirm whether any commercial contracts contain anti-assignment clauses that could block the transfer.

Non-Compete and Non-Solicitation

Establishes the geographic scope, duration, and covered activities of the seller's non-compete covenant. In the stucco and plastering trades, the non-compete must reflect the realistic service radius of the business and account for the seller's personal referral network.

💡 Non-competes in the plastering and stucco industry must be geographically realistic — a 75-mile radius is generally appropriate in metro markets, but may need to be expanded in rural or regional markets where the seller's reputation extends further. Sellers who plan to retire fully will accept broader non-competes; sellers who want to do small side jobs may push back. Buyers should ensure the non-compete extends to family members who were active in the business. Courts have occasionally limited enforcement of overbroad non-competes in contractor acquisitions, so precision matters.

Transition Services and Training

Defines the seller's post-close obligations to train the buyer, introduce the buyer to GC and customer relationships, and support operational continuity. Given the technical and relationship-dependent nature of stucco contracting, a structured transition is essential.

💡 Transition period length should reflect the complexity of the business and the degree of owner dependency. For stucco contractors where the owner manages estimating, GC relationships, and crew scheduling personally, 180 days is not excessive. Sellers who are eager to fully exit may push for a shorter commitment — buyers should hold firm on a minimum 90-day full-time period. The transition agreement should specify deliverables, not just availability, to ensure the seller is actively engaged in knowledge transfer rather than simply available by phone.

Due Diligence Period and Exclusivity

Establishes the buyer's exclusive right to conduct due diligence without the seller marketing the business to other parties, and defines the scope and timeline of the due diligence investigation.

💡 Forty-five to sixty days is a realistic due diligence window for a stucco contractor acquisition when SBA financing is involved — lenders add time to the process. Sellers should not grant exclusivity of more than 60 days without a clear milestone schedule or good faith deposit from the buyer. Buyers should prioritize early review of license transferability, equipment condition, worker classification compliance, and lien history — these are the areas most likely to surface deal-breaking issues in plastering contractor acquisitions.

Closing Conditions

Lists the specific conditions that must be satisfied before the transaction can close, including financing, licensing, employee retention confirmations, and lien clearance.

💡 Sellers should push back on any closing condition that gives the buyer unlimited discretion to walk away. Material adverse finding clauses should be defined specifically — for example, a single customer representing more than 35% of revenue departing during due diligence, or a license denial, constitutes a defined material adverse finding. Vague conditions allow buyers to use the due diligence period as a negotiating lever rather than a genuine investigation. Both parties benefit from a clearly defined closing checklist that tracks each condition to a responsible party and a deadline.