Letter of Intent Template for Acquiring a Waterproofing Company

Parties and Transaction Overview

Identifies the buyer, seller, and the legal entity or assets being acquired. Specifies whether this is an asset purchase or stock purchase — a critical distinction for waterproofing businesses given warranty liability exposure and licensing transferability.

💡 Most buyers of waterproofing companies strongly prefer asset purchases over stock purchases to avoid inheriting undisclosed warranty claims, prior litigation, or tax liabilities. Sellers may resist this if the business is a C-corp with built-in gains implications. If stock purchase is required, buyers should demand a significantly larger indemnification escrow — typically 15–20% of purchase price — held for 24–36 months to cover legacy warranty claims. Clearly define which warranty obligations, if any, Buyer will assume and document all outstanding warranty commitments as a closing condition.

Purchase Price and Valuation Basis

States the proposed total enterprise value, the methodology used to arrive at that number, and what financial performance it is based on. For waterproofing businesses, this is typically a multiple of trailing twelve-month or three-year average EBITDA after normalizing for owner compensation and add-backs.

💡 Waterproofing companies with demonstrable recurring revenue — annual maintenance contracts, sump pump monitoring agreements, or inspection programs — typically command multiples at the higher end of the 3.5x–5.5x range. Businesses where revenue is 100% project-based with no recurring component will be valued lower. Sellers should be prepared to clearly document and quantify any add-backs to EBITDA, including owner compensation above market rate, personal vehicle expenses, and non-recurring costs. Buyers should resist accepting EBITDA figures that include aggressive add-backs without supporting documentation.

Deal Structure and Financing

Outlines how the purchase price will be funded, including the split between SBA loan proceeds, seller note, buyer equity injection, and any earnout component. Sets expectations for financing contingencies and timeline.

💡 SBA 7(a) financing is the most common structure for waterproofing company acquisitions in the $1M–$4M purchase price range. SBA lenders will scrutinize warranty reserves, equipment condition, and owner dependency, so sellers must have clean books and documented operations. A seller note of 10–15% is often required by SBA lenders as a confidence signal. Sellers should negotiate that the seller note carries a market interest rate and that it is not subject to prepayment penalty. PE-backed roll-up buyers typically do not use SBA financing and will offer full cash at close with an earnout or equity rollover component instead.

Earnout Provisions

Defines whether any portion of the purchase price is contingent on post-closing performance, including the metric used, measurement period, payment timing, and caps. Earnouts are common in waterproofing acquisitions where revenue quality or owner dependency creates uncertainty.

💡 Earnouts in waterproofing deals are most appropriate when: (1) the seller's revenue projections exceed historical performance, (2) there is meaningful owner dependency in sales that creates post-close uncertainty, or (3) a significant commercial contract is pending renewal at time of sale. Sellers should push back on earnouts tied solely to EBITDA, as Buyer's post-close management decisions can directly affect costs and margins. Revenue-based earnouts with a minimum margin floor are more seller-friendly. Both parties should agree in advance on accounting methodology for earnout calculations to avoid disputes.

Warranty Liability and Assumption

One of the most critical sections for waterproofing acquisitions. Specifies which warranty obligations Buyer assumes, how outstanding warranties are inventoried and valued, and how legacy claims are handled. Failure to address this clearly is among the most common causes of post-close disputes in this industry.

💡 Waterproofing warranties commonly run 10–25 years, and buyers are right to be cautious about assuming open-ended liability. Request the full warranty history including claim rates, repair costs, and callbacks for the past three years. A warranty escrow funded by the seller at closing — typically 3–7% of purchase price — provides meaningful protection without requiring Buyer to purchase separate warranty insurance. Sellers with low historical claim rates and documented installation quality should be comfortable with this structure. If a seller refuses to provide a warranty schedule or resists an escrow, treat this as a significant red flag.

Due Diligence Period and Access

Defines the length of the due diligence period, what information Buyer will receive access to, and the conditions under which Buyer may terminate the LOI without penalty during this window.

💡 For waterproofing companies, 45 business days is a reasonable due diligence window. Key areas requiring deep investigation include: (1) equipment and vehicle condition — injection rigs, drain tile machines, and work trucks are expensive to replace and buyers should inspect physically; (2) licensing status in every jurisdiction where work is performed, including whether licenses are held personally by the owner or by the entity; (3) customer concentration — if a single GC or property manager accounts for more than 20% of revenue, buyers should require a contract assignment or relationship transition plan; and (4) technician certifications and whether any are held personally rather than at the company level.

Exclusivity and No-Shop

Establishes the period during which Seller agrees not to solicit, entertain, or negotiate with other potential buyers. Protects Buyer's investment of time and money in due diligence.

💡 Sixty days of exclusivity is standard for waterproofing company acquisitions using SBA financing given the lender approval timeline. PE buyers typically complete deals faster and may accept 45-day exclusivity. Sellers should not accept exclusivity without a corresponding commitment from Buyer to submit an SBA application or financing commitment letter within a defined window — typically 15 business days. If Buyer fails to meet this milestone, Seller should have the right to terminate exclusivity early. Unlimited or auto-renewing exclusivity provisions heavily favor the Buyer and should be rejected.

Transition and Employment Terms

Outlines the seller's commitment to remain with the business post-closing to support knowledge transfer, customer relationship continuity, and operational handoff. Addresses whether key employees will be retained and on what terms.

💡 Owner transition length is one of the most important and negotiated terms in waterproofing acquisitions because many sellers are the primary estimator and customer relationship holder. Buyers should negotiate for a 12-month paid transition with a 6-month post-transition consulting arrangement. Sellers who have already built an independent operations manager or sales lead can reasonably request a shorter transition of 6 months. Include a non-compete provision of 3–5 years in the same geographic market as part of the definitive agreement. The non-compete should cover both direct waterproofing services and closely adjacent services like foundation repair and drainage contracting.

Confidentiality and Binding Terms

Specifies which provisions of the LOI are legally binding and enforceable, and which are non-binding expressions of intent. Confirms that the confidentiality agreement remains in full force.

💡 Sellers should ensure they understand which sections are binding before signing. The exclusivity and confidentiality provisions carry real legal weight even if the deal does not close, and violating either can expose a seller to claims for damages. Buyers should confirm that the confidentiality provisions cover not only financial data but also customer lists, warranty procedures, proprietary installation systems, and employee information — all of which are competitively sensitive in the waterproofing industry.