The Letter of Intent (LOI) is the document where a buyer formally expresses their intent to purchase your HVAC business at a specific price under specific terms. It sounds like a preliminary document — non-binding, exploratory, just the beginning. In reality, the LOI is where deals are made or lost, and the terms you agree to in the LOI almost always end up in the final purchase agreement.
What's in an HVAC Business LOI
A typical LOI for an HVAC business sale covers several key sections:
- Purchase price: Total consideration, usually expressed as a specific dollar amount or as a multiple of EBITDA with a defined calculation methodology.
- Deal structure: Asset sale vs. stock sale (or 338(h)(10) election); how consideration is split between cash at close, seller note, and/or earnout.
- Working capital: The target working capital that must remain in the business at close; how surpluses/deficiencies adjust the purchase price.
- Exclusivity period: The number of days you're locked out from talking to other buyers while the buyer does due diligence. This is binding and typically 45–90 days.
- Earnout provisions (if any): Metrics, measurement period, payment schedule, and conditions.
- Seller's role post-close: Transition requirements, employment agreement parameters, compensation during transition.
- Non-compete: Duration and geographic scope of your restriction on competition post-close.
- Due diligence conditions: What the buyer's completion right is contingent on finding (or not finding).
What's Binding vs. Non-Binding in an LOI
The price and most deal terms in an LOI are typically non-binding — the buyer can re-trade after completing due diligence if they find something they don't like. The dangerous binding provisions are exclusivity and confidentiality.
When you sign exclusivity, you're locked out from talking to competing buyers for the duration of the period. If due diligence takes 90 days and the buyer then walks or tries to re-trade heavily, you've lost 90+ days of time-to-market and any competing interest that existed before you signed. This is why negotiating a short exclusivity period (45 days, with one reasonable extension) is so important.
Red Flags in an LOI
| Red Flag | What It Signals | What to Do |
|---|---|---|
| 90+ day exclusivity period | Buyer wants time to decide without competition pressure | Push back to 45–60 days maximum |
| EBITDA-based earnout for 3+ years | Buyer intends to cut costs post-close to hit your earnout metrics low | Negotiate revenue metric, shorter period, or higher at-close |
| No specific working capital peg | Buyer will propose a favorable peg post-LOI, capturing cash you assumed was yours | Define the working capital formula in the LOI |
| Vague rollover equity terms | The equity you're "rolling over" may have no liquidity path | Require defined terms: valuation, liquidation preference, exit rights |
| Very broad non-compete (5yr, 300mi) | You'll be effectively locked out of your industry | Negotiate to market area and 2–3 year term |
Don't Sign an LOI Until You Understand Every Term.
The LOI is the most important document in your sale process — and most HVAC owners sign it too quickly, too eagerly, and with too little negotiation. The terms you agree to in the LOI shape every downstream negotiation. Let's make sure you're going in with your eyes open.
Talk to Tim — Free LOI Review