A field-tested LOI framework for buyers acquiring towing operations with motor club contracts, municipal agreements, and mixed-asset fleets — structured for SBA 7(a) financing and lower middle market deal terms.
A Letter of Intent (LOI) is the first binding signal of seriousness in a towing business acquisition — and in this industry, the details matter more than most. Towing companies carry unique deal risks: motor club agreements with AAA, Agero, or Allstate that may not be assignable, municipal tow rotation contracts tied to individual operator relationships, aging truck fleets with deferred maintenance, and cash-heavy revenue histories that require careful verification. A well-drafted LOI for a towing acquisition goes beyond purchase price. It must address fleet asset inclusion, contract transferability conditions, impound lot lease or ownership rights, seller training commitments, and earnout structures tied to contract retention. For buyers using SBA 7(a) financing — the most common structure in this segment — the LOI also needs to reflect an equity injection of 10–20%, identify whether real estate is bundled or separated, and flag any seller note requirements the lender will scrutinize. This guide walks through every section of a towing industry LOI with example language, negotiation notes, and the five most costly mistakes buyers make before due diligence even begins.
Find Towing & Roadside Assistance Businesses to AcquireParties and Transaction Overview
Identifies the buyer entity, seller entity, and the legal structure of the proposed transaction. For towing acquisitions, specifying asset purchase versus stock purchase is critical given the liability exposure from DOT violations, impound claims, and vehicle damage litigation that may sit inside the corporate entity.
Example Language
This Letter of Intent ('LOI') is entered into as of [Date] between [Buyer Entity Name], a [State] [LLC/Corporation] ('Buyer'), and [Seller Entity Name], a [State] [LLC/Corporation] ('Seller'), operating under the trade name [DBA Name] ('the Business'). The parties intend to structure this transaction as an asset purchase, whereby Buyer will acquire substantially all operating assets of the Business, including but not limited to the truck fleet, dispatch systems, customer contracts, trade name, and associated goodwill, excluding cash, accounts receivable prior to closing, and any liabilities not expressly assumed.
💡 Sellers in towing often prefer stock sales to avoid recapture taxes on depreciated truck assets. Buyers should push for asset purchase to avoid inheriting DOT violation history, impound litigation, and insurance claims embedded in the corporate entity. If seller insists on stock sale, require full representations and warranties insurance or a substantial escrow holdback tied to pre-closing liabilities.
Purchase Price and Valuation Basis
States the proposed purchase price, the valuation methodology used, and how the price allocates between hard assets (trucks, equipment, real estate) and intangible value (contracts, goodwill, trade name). Towing businesses in the lower middle market typically trade at 2.5x–4.5x SDE, with higher multiples justified by municipal contracts, diversified revenue, and modern fleets.
Example Language
Buyer proposes a total purchase price of $[X,XXX,000] ('Purchase Price'), representing approximately [3.0x–3.5x] of the Business's trailing twelve-month Seller's Discretionary Earnings of approximately $[XXX,000], as represented by Seller. The Purchase Price is subject to adjustment following completion of financial due diligence and independent fleet appraisal. Buyer proposes a preliminary allocation of approximately $[XXX,000] to titled fleet vehicles and heavy equipment, $[XX,000] to shop equipment and tools, and the remainder to goodwill, customer contracts, and trade name. Final allocation to be agreed upon prior to closing for IRS Form 8594 purposes.
💡 Fleet condition is the single largest variable in towing valuations. Require an independent appraisal of all trucks before finalizing price. High-mileage wreckers and flatbeds with deferred maintenance can swing enterprise value by $200K–$500K in a mid-sized operation. Municipal and motor club contracts should be valued conservatively until transferability is confirmed in writing.
Deal Structure and Financing Contingency
Outlines how the transaction will be financed, including SBA 7(a) loan terms, seller note requirements, equity injection, and any earnout provisions. This section protects both parties by setting clear expectations around financing timelines and conditions before exclusivity begins.
Example Language
Buyer intends to finance the acquisition using an SBA 7(a) loan representing approximately [75–80%] of the Purchase Price, with Buyer providing an equity injection of [10–15%] at closing. Buyer requests that Seller provide a subordinated seller note of approximately [10%] of the Purchase Price, to be deferred for a period acceptable to the SBA lender, as a condition of financing. This LOI is contingent upon Buyer's receipt of an SBA loan commitment on terms satisfactory to Buyer within [45] days of full execution. In addition, Buyer proposes an earnout of up to $[XX,000] payable over [12–18] months contingent upon retention of [specify: municipal tow rotation contract with City of X / AAA motor club provider status] generating no less than $[XX,000] in gross revenue during the earnout period.
💡 SBA lenders will scrutinize motor club and municipal contracts closely. If a contract is the business's primary revenue driver and not confirmed assignable, the lender may reduce loan proceeds or require a larger equity injection. Earnouts tied to contract retention are increasingly common in towing acquisitions and protect buyers from paying full price for a business that loses its anchor contract post-closing. Sellers should push for a short earnout window and clear measurement criteria.
Assets Included and Excluded
Provides a specific schedule or description of assets included in the sale, with particular attention to titled vehicles, real estate, impound lot leases, dispatch technology, and any assets the seller intends to retain. In towing acquisitions, ambiguity around truck titles, lot leases, and radio or GPS dispatch systems creates significant post-closing disputes.
Example Language
The following assets are included in the proposed Purchase Price: (a) all titled tow trucks, wreckers, flatbeds, and service vehicles currently in active operation, as listed on the attached preliminary fleet schedule; (b) all shop equipment, lifts, tools, and yard equipment located at [address]; (c) the Business's dispatch software, GPS fleet tracking system, and associated data including customer history; (d) all motor club provider agreements, municipal tow rotation contracts, and commercial account relationships, subject to counterparty consent where required; (e) the Business's trade name, telephone numbers, website, and social media accounts; and (f) the impound lot lease at [address], subject to landlord consent to assignment. Excluded assets include: Seller's personal vehicle ([Year/Make/Model, VIN]), all pre-closing accounts receivable, and cash on hand at closing.
💡 Confirm title status on every truck before signing. In towing operations, it is common to find vehicles with liens, title issues, or registration lapses that complicate transfer. Request a fleet title report as a due diligence deliverable. Separately, confirm whether the impound lot is owned or leased — owned real estate may be carved out into a separate SBA 504 loan or a landlord lease-back arrangement, both of which affect deal structure materially.
Due Diligence Period and Access
Defines the length of the due diligence period, the information Buyer will require, and the access Seller must provide to financial records, contracts, fleet documentation, and operational systems. Towing acquisitions require specialized due diligence beyond standard financial review.
Example Language
Following full execution of this LOI, Seller shall provide Buyer with a period of [45–60] days ('Due Diligence Period') to complete its review of the Business. During this period, Seller shall provide Buyer with reasonable access to: (a) three years of federal tax returns and monthly profit and loss statements; (b) all motor club provider agreements including fee schedules and call volume history; (c) all municipal tow rotation contracts, bid documents, and renewal terms; (d) fleet maintenance records, DOT inspection history, and insurance claims for all vehicles for the prior three years; (e) all impound lot records including vehicle storage revenue, lien sale documentation, and any outstanding disputes; (f) driver employment records, CDL license copies, and DOT compliance files; and (g) documentation of any pending litigation, DOT violations, or regulatory proceedings.
💡 Sixty days is a reasonable due diligence window for towing acquisitions given the complexity of fleet appraisals, contract assignability review, and DOT compliance audits. Sellers with cash-heavy histories should expect buyers to request bank statements and deposit records alongside tax returns. Any gap between reported revenue and bank deposits will be flagged by SBA lenders and should be reconciled before LOI execution if possible.
Exclusivity and No-Shop Period
Grants Buyer an exclusive negotiating period during which Seller agrees not to solicit, entertain, or accept other offers for the Business. This is the primary binding obligation in most LOIs.
Example Language
In consideration of Buyer's commitment to conduct due diligence and incur transaction costs, Seller agrees that for a period of [60] days following full execution of this LOI ('Exclusivity Period'), Seller shall not, directly or indirectly, solicit, encourage, or enter into discussions with any other party regarding the sale, merger, recapitalization, or transfer of the Business or its material assets. If the parties have not executed a definitive Asset Purchase Agreement by the end of the Exclusivity Period but are negotiating in good faith, the parties may mutually agree to extend the Exclusivity Period in writing.
💡 Sixty days is standard for towing acquisitions but may need extension if fleet appraisals or contract assignability letters take longer than expected. Sellers should resist exclusivity periods longer than 75 days without a non-refundable deposit or clear milestone checkpoints. Buyers should ensure the exclusivity clause is one of the few binding provisions in the LOI alongside confidentiality.
Seller Training and Transition
Specifies the seller's obligation to remain involved in the business post-closing to transition motor club relationships, municipal contract contacts, dispatch operations, and driver team management — the four areas most vulnerable to owner-departure risk in towing acquisitions.
Example Language
Seller agrees to remain available to Buyer for a transition period of [90] days following closing ('Transition Period') at no additional cost to Buyer, for up to [20] hours per week. During the Transition Period, Seller shall assist Buyer with: (a) introduction to motor club regional representatives and contract administrators for AAA, Agero, and [other clubs]; (b) introduction to municipal contacts and law enforcement dispatch personnel managing tow rotation assignments; (c) orientation of existing drivers, dispatchers, and yard staff; and (d) transfer of dispatch software access, GPS fleet systems, and vendor relationships. Following the Transition Period, Seller shall be available for up to [12] months as a paid consultant at a rate of $[XXX] per hour upon Buyer's request.
💡 Key-person risk is the most commonly underestimated risk in towing acquisitions. Sellers who handle all dispatch relationships, motor club contacts, and municipal account management personally represent a significant transition risk. Buyers should require a longer transition period — up to 6 months for complex operations — and consider making part of the seller note contingent on cooperation during transition milestones.
Non-Compete and Non-Solicitation
Prevents the seller from starting or joining a competing towing operation within a defined geographic radius and time period following closing, and from soliciting key employees, drivers, or customers.
Example Language
As a condition of closing, Seller shall execute a Non-Competition and Non-Solicitation Agreement providing that for a period of [4] years following the Closing Date, Seller shall not, directly or indirectly: (a) own, operate, manage, or consult for any towing, roadside assistance, or vehicle recovery business operating within [50] miles of [primary business location]; (b) solicit or accept business from any motor club, municipal authority, or commercial customer of the Business as of the Closing Date; or (c) solicit, hire, or encourage any employee or driver of the Business to terminate their employment. The geographic restriction and time period are intended to protect the goodwill and contract relationships acquired by Buyer and are subject to final agreement in the Asset Purchase Agreement.
💡 A 50-mile radius is appropriate for regional towing operations; adjust for rural markets where the operator may hold contracts across a wider service area. Four years is reasonable given SBA lender requirements — the SBA generally requires a minimum 2-year non-compete for goodwill financing purposes. Sellers who plan to move out of state may negotiate a reduced radius in exchange for a longer time period.
Conditions to Closing
Lists the material conditions that must be satisfied before Buyer is obligated to close the transaction, including financing approval, contract assignability, clean fleet titles, and resolution of outstanding regulatory issues.
Example Language
Buyer's obligation to consummate this transaction is conditioned upon the satisfaction of the following conditions prior to or at closing: (a) receipt of SBA 7(a) loan commitment on terms satisfactory to Buyer; (b) written confirmation from all motor club counterparties (AAA, Agero, [others]) that provider agreements are assignable to Buyer or will be reissued to Buyer without material modification; (c) execution of a municipal tow rotation assignment or new contract enrollment acceptable to Buyer for all active rotation contracts; (d) clear, lien-free title on all fleet vehicles included in the Purchase Price; (e) confirmation that all trucks, wreckers, and service vehicles have current DOT registration, valid operating authority, and no outstanding violations; (f) assignment or renewal of the impound lot lease on terms acceptable to Buyer; and (g) no material adverse change in the Business's revenue, contract status, or operations between the LOI date and closing.
💡 Contract assignability is frequently the deal-killer in towing acquisitions. Motor club agreements — particularly with Agero and Allstate — often require provider vetting and approval processes that can take 30–60 days or longer. Buyers should initiate assignability conversations with motor club representatives early in due diligence, before spending significant capital on legal fees and appraisals. If contracts cannot be assigned, the deal economics change materially.
Motor Club Contract Transferability
Before agreeing to any purchase price, confirm in writing whether AAA, Agero, Allstate, or other motor club agreements are assignable to the buyer entity. Some agreements terminate automatically upon change of ownership and require new provider applications, vetting periods, or requalification. If a motor club contract represents more than 30% of revenue and cannot be confirmed assignable, the purchase price and deal structure should reflect that risk explicitly — either through a price reduction or an earnout tied to successful re-enrollment.
Fleet Valuation and Condition Adjustment
The purchase price should include a price adjustment mechanism tied to the results of an independent fleet appraisal conducted during due diligence. Truck values decline rapidly with mileage, and towing fleets often have deferred maintenance that sellers underestimate. Negotiate the right to reduce the purchase price dollar-for-dollar for any truck excluded from the closing due to title issues, failed inspection, or mechanical condition below agreed thresholds, rather than accepting a flat fleet value stated in the LOI.
Earnout Tied to Contract Retention
For towing businesses where municipal or motor club contracts represent the core of enterprise value, an earnout of 10–20% of the purchase price tied to 12–24 months of contract performance is both fair and common. Negotiate clear measurement terms: which contracts must be retained, what revenue thresholds trigger payment, and how disputes are resolved. Sellers should push for shorter measurement windows and caps on what can disqualify earnout payment — particularly force majeure events like contract rebid processes outside their control.
Impound Lot Lease or Real Estate Terms
The impound and storage lot is a critical operational asset in towing — without a secure, zoned location for vehicle storage, the business cannot operate legally. Confirm the lease term, renewal options, and landlord consent to assignment before closing. If the seller owns the real estate, negotiate separately: buyers may structure it as a landlord lease-back at market rate (with an option to purchase) or include it in an SBA 504 real estate loan alongside the business acquisition. Never close a towing acquisition without a minimum 5-year lease with renewal options secured for the storage lot.
Seller Note Subordination and Standby Period
SBA 7(a) lenders typically require seller notes to be on full standby for 24 months post-closing, meaning the seller receives no principal or interest payments during that period. Sellers unfamiliar with SBA deal structures are often surprised by this requirement. Negotiate the seller note terms — including standby period, interest rate, and repayment schedule — before LOI execution so both parties understand the true cash-to-close figure and the seller's total liquidity timeline.
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Most LOI provisions are non-binding, including the purchase price, deal structure, and due diligence terms. The binding provisions are typically limited to exclusivity, confidentiality, and any agreed break-up fee. However, the LOI sets the commercial framework for the definitive Asset Purchase Agreement, so the terms you agree to in the LOI become the starting point for final negotiations. For towing acquisitions specifically, make sure the LOI accurately reflects your assumptions about fleet condition and contract assignability — walking back on price after signing is possible but damages trust and often kills the deal.
Plan for 45–60 days of formal due diligence for a towing business in the $1M–$5M revenue range. Fleet appraisals typically take 5–10 business days, motor club contract assignability review can take 30–45 days depending on the counterparty, and DOT compliance audits add another 1–2 weeks. If the seller owns real estate or if the impound lot requires zoning verification, add additional time. Do not compress due diligence to accelerate closing — undiscovered fleet problems, contract non-assignability, or DOT violation history are the most common reasons towing acquisitions fail or require significant price renegotiation.
Yes. Towing and roadside assistance businesses are SBA 7(a) eligible and are a good fit for this financing structure given their stable cash flows, hard asset collateral, and essential service characteristics. A typical SBA-financed towing acquisition involves 10–15% buyer equity injection, an SBA 7(a) loan covering 75–80% of the purchase price, and a subordinated seller note of approximately 10% held on standby for 24 months. The SBA lender will scrutinize motor club and municipal contract assignability, fleet collateral quality, and the seller's tax return revenue relative to claimed SDE. Clean, verifiable financials and confirmed contract transferability are prerequisites for SBA approval.
If motor club agreements with AAA, Agero, or Allstate cannot be assigned to your buyer entity, you have three options: renegotiate the purchase price downward to reflect the lost revenue; structure an earnout where you pay for the contracts only if you successfully re-enroll as an approved provider post-closing; or walk away if the contracts represent the majority of revenue and re-enrollment is not guaranteed. Some buyers operate under the seller's provider credentials during a short transition period while applying for their own enrollment, but this carries legal and contractual risk. Always confirm assignability before closing and make it an explicit condition in the LOI.
It depends on the seller's preference and your financing structure. If the seller owns the real estate, it can be bundled into the acquisition (financed separately via SBA 504 or included in the 7(a) loan up to program limits), or the seller can retain ownership and lease it back to you at market rate with a long-term lease and purchase option. A lease-back can actually benefit buyers by reducing the upfront purchase price while preserving operational control. Never close without either owning the lot or holding a minimum 5-year lease with renewal options — losing access to your impound lot after closing is an existential business risk in this industry.
A well-structured earnout for a towing acquisition typically covers 10–20% of the total purchase price, measured over 12–24 months post-closing, and is tied to specific contract retention metrics rather than total revenue. For example: 'Seller shall receive an additional $150,000 if the municipal tow rotation contract with [City] and the AAA provider agreement remain in effect and generate a combined minimum of $400,000 in gross revenue during the 18 months following closing.' Keep earnout metrics objective, limit them to 1–2 measurable triggers, and specify clearly what actions by the seller void or reduce the earnout payment. Ambiguous earnout language is the leading source of post-closing disputes in towing acquisitions.
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