Letter of Intent Template for Acquiring a Transmission Repair Shop

Parties and Business Identification

Clearly identify the buyer entity (or individual), the seller, and the legal name and address of the transmission repair shop being acquired. Specify whether the buyer is purchasing as an individual, LLC, or corporation, and note if the entity is newly formed for this transaction.

💡 If the buyer is forming a new LLC specifically for the acquisition, state that clearly. Sellers should confirm the legal entity that will be bound by the non-solicitation and transition cooperation obligations. SBA lenders will also require the borrowing entity to be identified early in the process.

Purchase Price and Valuation Basis

State the proposed total purchase price, the valuation methodology used to arrive at that number, and the allocation across goodwill, equipment, inventory, and any other assets. For transmission shops, this section should acknowledge that the price was derived using a multiple of Seller's Discretionary Earnings (SDE).

💡 Transmission shops often have significant value tied to specialty equipment — transmission dynamometers, valve body testers, and rebuild benches. Buyers should resist paying goodwill-level multiples for aging equipment that will need replacement within 24 months. Sellers should push back on inventory discounts unless a formal audit has been completed. Lock in the SDE figure and add-back list before signing the LOI.

Asset Purchase Structure and Inclusions

Specify that the transaction is structured as an asset purchase rather than a stock purchase, and enumerate which assets are included. For transmission shops, this section must explicitly address equipment, inventory, customer lists, fleet service agreements, phone numbers, website, and any proprietary diagnostic software licenses.

💡 Buyers must explicitly include fleet and commercial service agreements in the asset list — these represent the most defensible recurring revenue in a transmission shop and are frequently underspecified in early drafts. Sellers should confirm which equipment has liens or financing outstanding, as those must be cleared at closing or assumed by buyer with lender approval.

Inventory Valuation and Audit

Address how parts inventory will be valued and verified prior to closing. Transmission shop inventory can vary widely in quality — it often includes slow-moving cores, obsolete units for discontinued vehicles, and expensive new OEM parts. This section establishes the audit process and how disagreements will be resolved.

💡 This is a high-friction section in transmission shop deals. Sellers overestimate inventory value; buyers underestimate how much usable stock is present. Agree in advance on who defines 'obsolete' and what documentation is required. A third-party auto parts appraiser can resolve disputes but adds cost and time. Build the audit window into the due diligence timeline.

Due Diligence Period

Establish the length of the due diligence period, what access the buyer will receive, and what deliverables the seller is responsible for providing. For transmission shops, due diligence must cover technician certifications, equipment condition reports, environmental compliance records, and fleet account documentation.

💡 Forty-five days is the minimum realistic window for a transmission shop with SBA financing — environmental and equipment reviews take time. Sellers should be cautious about granting unlimited extensions; cap extensions at one and require written justification. If the seller lacks environmental documentation, surface this before the LOI is signed rather than after, as it can kill the deal or force a price reduction.

Financing Contingency

State whether the LOI is contingent on the buyer securing financing, the type of financing being pursued, and the timeline for a financing commitment. Most transmission shop acquisitions in the $500K–$2M range are financed through SBA 7(a) loans.

💡 Sellers should require proof of pre-qualification or a bank meeting as a condition of exclusivity, not just a financing contingency. Buyers should confirm that the lender is experienced with SBA auto repair acquisitions and understands transmission shop collateral — equipment appraisals and environmental phase one assessments are standard SBA requirements for this industry.

Seller Transition and Non-Compete

Define the seller's commitment to transition the business post-closing, including duration, compensation, and scope. Also establish the geographic radius and term of the non-compete agreement. For transmission shops where owner relationships drive referrals, this section is especially critical.

💡 A 60-day full-time transition is non-negotiable for shops where the owner holds the primary fleet account relationships. Buyers should push for introduction meetings with the top five accounts to occur within the first two weeks. The non-compete radius and duration will be subject to SBA lender requirements — SBA typically requires a minimum 2-year non-compete; buyers should negotiate for 5 years given the local nature of transmission referral networks.

Earnout Provision

If applicable, describe any earnout tied to post-closing revenue performance, fleet account retention, or technician retention. Earnouts are common in transmission shop deals where customer concentration or owner dependency creates buyer risk.

💡 Earnouts are useful when buyer and seller disagree on the sustainability of fleet accounts or the impact of owner departure. Keep earnout structures simple — tie them to gross revenue, not EBITDA, to avoid accounting disputes. Cap the measurement period at 12 months. Sellers should insist on audit rights for the revenue statements used to calculate earnout payments.

Exclusivity and No-Shop Period

Establish a period during which the seller agrees not to solicit or entertain offers from other buyers. This protects the buyer's investment of time and legal fees during due diligence.

💡 Sixty days is a reasonable exclusivity window for an SBA-financed transaction. Sellers should not grant exclusivity without a signed LOI and evidence of buyer financing capability. Buyers should understand that some brokers represent sellers who will not grant exclusivity until due diligence is further advanced — negotiate a shorter exclusivity window with an option to extend upon financing commitment.

Confidentiality

Confirm that both parties will maintain the confidentiality of all financial, operational, and customer information shared during due diligence. For transmission shops, this includes fleet account identities, pricing schedules, and technician compensation details.

💡 Transmission shop staff are particularly sensitive to ownership change rumors — even a hint of a sale can cause a key technician to start looking for another job. Sellers should insist that buyer conversations with staff not occur until after a purchase agreement is signed, and buyers should agree in writing. Fleet account contacts should be introduced to the buyer only in the final days before or at closing.

Closing Timeline and Conditions

Establish a target closing date and enumerate the conditions that must be satisfied prior to closing. Include financing approval, lease assignment, environmental clearance, and any technician retention conditions.

💡 Technician retention as a closing condition is uncommon but worth negotiating in shops with only one or two qualified rebuilders. Buyers can structure this as a condition rather than a representation, giving them the right to walk away or renegotiate if a key tech departs before closing. Lease assignment is frequently the longest-lead item — initiate landlord conversations within 10 days of LOI execution.