Letter of Intent Template & Guide for Acquiring a Test Prep Center

Identification of Parties and Business

Clearly identifies the buyer entity, the seller, and the specific business being acquired — including any legal entities, trade names, and physical or online locations covered by the transaction.

💡 Specify every operating location and online delivery platform included in the sale. If the center operates under a licensed franchise brand (e.g., Huntington, Sylvan), flag this immediately — franchise transfers require franchisor consent and impose separate approval timelines that will affect closing. Confirm whether the seller holds the lease, the curriculum IP, and the domain/social media assets in the same entity being sold.

Purchase Price and Valuation Basis

States the proposed total purchase price, the valuation methodology used to arrive at that number, and the implied EBITDA multiple being applied to the business.

💡 Test prep centers typically trade at 2.5x–4.5x EBITDA depending on owner-dependency, diversification across exam categories, and online delivery capability. Push for the lower end of the range (2.5x–3.0x) if the owner is the primary instructor or if more than 60% of revenue is concentrated in a single test category like SAT/ACT. Justify a higher multiple only when there is a tenured instructor team, documented pass rates across multiple exam categories, and a CRM-driven enrollment system with measurable cost per student acquisition.

Deal Structure and Consideration Breakdown

Outlines how the purchase price will be funded, including the split between cash at closing, SBA loan proceeds, seller financing, and any earn-out component tied to post-closing performance.

💡 SBA 7(a) financing is widely available for test prep center acquisitions and typically requires 10–15% buyer equity injection. Seller notes of 5–10% of deal value are generally required by SBA lenders to demonstrate seller confidence in the transition. Earn-outs are particularly important in this industry because enrollment is relationship-driven — tie earn-out metrics to enrollment retention by exam category and gross revenue, not EBITDA, which can be manipulated through cost allocation. Avoid earn-out periods exceeding 36 months as they create prolonged dependency conflicts with the seller.

Assets Included in the Sale

Enumerates the specific tangible and intangible assets transferred to the buyer, including curriculum materials, student data, technology platforms, and brand assets.

💡 Curriculum IP is the most commonly overlooked asset in test prep acquisitions. Demand a written schedule of all curriculum materials and a clear representation of ownership versus license. If the business uses third-party licensed content from providers like The Princeton Review, Kaplan, or proprietary digital platforms, verify transferability before signing the LOI — some licensing agreements prohibit assignment and could void significant curriculum value. Student data is also critical: confirm FERPA compliance and that all records can be legally transferred to a new operator.

Due Diligence Period and Access

Defines the length of the due diligence period, the scope of information to be provided, and the access rights granted to the buyer to inspect the business operations.

💡 45–60 days is appropriate for most test prep centers in the $1M–$4M revenue range. Push for enrollment trend data going back at least 36 months to identify whether any decline in SAT/ACT demand is being masked by growth in MCAT or professional licensure programs. Request pass rate documentation with methodology — some centers inflate pass rates by excluding students who do not complete programs. Instructor non-compete review is critical: if top instructors are contractors without non-competes, your core delivery capability and student retention are exposed from day one post-closing.

Exclusivity and No-Shop Provision

Grants the buyer an exclusive negotiating period during which the seller agrees not to solicit, entertain, or negotiate with other potential acquirers.

💡 45–60 days of exclusivity is standard for this deal size and aligns with the due diligence period. Sellers with multiple interested buyers may push for 30 days — resist this if you are pursuing SBA financing, as bank processing alone can take 30–45 days. If the seller is reluctant to grant exclusivity, it signals either active competing interest or a reluctance to commit, both of which warrant caution about deal timeline and seller motivation.

Conditions to Closing

Lists the key conditions that must be satisfied before the transaction can close, protecting the buyer from proceeding if material issues are uncovered or external approvals are not obtained.

💡 Instructor retention agreements are non-negotiable conditions in test prep acquisitions — frame them as a closing condition, not an afterthought. If the top two or three instructors are unwilling to commit to employment or contractor agreements through transition, the deal risk profile changes materially and the purchase price should reflect that. The seller non-compete must explicitly cover online instruction and tutoring services given that digital delivery eliminates geographic barriers — a county-level non-compete is insufficient in the current market.

Transition and Seller Cooperation

Specifies the seller's post-closing obligations to support operational continuity, including a defined transition period, knowledge transfer activities, and student relationship handoff protocols.

💡 In owner-operated test prep centers, the seller's face is often the brand — parents and students have personal loyalty to the founder that can defect post-sale if the transition is mismanaged. A 90–180 day paid transition is standard, and structured communication scripts for announcing the ownership change should be negotiated as a closing deliverable. If the seller is also the primary instructor, consider extending the transition period to a full enrollment cycle (typically 9–12 months) to avoid disruption during peak SAT/ACT season.

Confidentiality

Obligates both parties to maintain the confidentiality of the transaction and all non-public information exchanged during the LOI and due diligence process.

💡 Confidentiality is especially important in test prep because premature disclosure of a pending sale can trigger instructor departures and student attrition before the deal closes. Ensure the confidentiality clause explicitly covers the seller's obligation not to disclose to staff, students, or competitor operators. If the seller plans to notify key instructors as part of retention negotiations, structure a mutual agreement on timing and messaging before any disclosures are made.

Non-Binding Nature and Governing Law

Clarifies which provisions of the LOI are binding versus non-binding and establishes the governing jurisdiction for any disputes.

💡 Make exclusivity and confidentiality explicitly binding even within a non-binding LOI framework — these are the two provisions with real enforcement value before a definitive agreement is signed. If the seller's attorney attempts to make the entire LOI non-binding including the exclusivity clause, push back firmly or insist on a separate standalone exclusivity agreement as a condition of proceeding.