The core deal is workable. Four mechanics deserve attention before signing.
The asset structure, headline price, financing contingency, and seller transition are reasonably clear. The main concerns are a 15-day gap between exclusivity and diligence, unclear customer-deposit economics, additional inventory funding at closing, and deposit terms that may not align with the LOI's binding provisions.
The transaction described in the LOI
Key terms are organized here as stated, without treating optional structures as missing requirements.
- Buyer
- Atlas Search Partners LLC
- Seller
- Main Street HVAC Holdings, Inc.
- Target
- Main Street HVAC, LLC
- Purchase structure
- Asset purchase
- Purchase price
- $2,850,000
- Financing
- SBA 7(a) financing plus seller note
- Buyer equity
- 10% / $285,000
- Seller note
- $350,000 over 60 months
- Earnest deposit
- $50,000 in escrow
- Inventory
- Purchased separately at cost
- Diligence
- 60 days after execution
- Exclusivity
- 45 days unless an APA is signed
What deserves attention before signing
Prioritized by potential effect on protection, required cash, obligations, and the ability to close.
Resolve Before Signing Sections 3 and 6 Exclusivity may end before diligence is complete The buyer receives 60 days for feasibility, but the seller may resume discussions with other buyers after day 45 if a purchase agreement has not been signed.
Relevant LOI language Sections 3 and 6
Buyer shall have sixty (60) days from mutual acceptance to complete its feasibility studies. Seller shall not negotiate with another party unless the parties do not reach a binding purchase and sale agreement within forty-five (45) days.
Why it matters
The buyer could still be spending money on financial, legal, and lender diligence after no-shop protection has expired. Pressure to sign the purchase agreement by day 45 may also reduce the value of the full diligence period.
Suggested next step
Align exclusivity with the diligence and financing timeline, or add an automatic extension while the buyer is proceeding diligently and the seller is providing requested information.
Best discussed with
Buyer and transaction counsel
Resolve Before Signing Section 2(i) Customer deposits may transfer unfinished-job risk to the buyer The seller keeps half of pre-closing customer deposits while the buyer becomes responsible for completing the related work.
Relevant LOI language Section 2(i)
Fifty percent (50%) of customer deposits collected prior to Closing shall remain with Seller. Buyer shall collect the remaining fifty percent (50%) and shall be responsible for completing the work.
Why it matters
The retained deposits, materials already ordered, remaining labor, expected gross margin, refunds, warranties, and responsibility for cost overruns all affect the economics of acquired backlog.
Suggested next step
Quantify the open jobs and specify how deposits, materials, completion costs, refunds, and post-closing liabilities will be allocated and reconciled.
Best discussed with
Buyer, financial advisor, and transaction counsel
Clarify Before Signing Section 2(h) Inventory increases the cash required at closing Inventory is purchased at cost in addition to the stated purchase price, but no target, cap, counting process, or funding treatment is provided.
Relevant LOI language Section 2(h)
Current inventory, determined immediately before Closing, shall be purchased at Seller's cost.
Why it matters
The headline price may understate total uses of funds. Without an agreed count and valuation method, the amount can remain uncertain until immediately before closing.
Suggested next step
Set a target or cap, define eligible and obsolete inventory, establish the physical-count process, and confirm that the lender will fund the additional amount.
Best discussed with
Buyer, lender, and financial advisor
Clarify Before Signing Sections 4, 5, and 15 Deposit obligations may not match the binding section The LOI requires a $50,000 deposit and permits releases for closing extensions, but the non-binding section identifies only confidentiality and exclusivity as binding.
Relevant LOI language Sections 4, 5, and 15
Buyer shall deposit $50,000 into escrow within five (5) days. This Letter is non-binding except with regard to Confidentiality and Exclusivity.
Why it matters
The parties may have different expectations about whether the deposit must be funded, when it can be released, and what happens if the transaction stops before a definitive agreement is signed.
Suggested next step
Have counsel reconcile the deposit, refund, extension-payment, and binding-provision language before funds are placed in escrow.
Best discussed with
Transaction counsel
How the deal clocks line up
Related deadlines are compared because each provision can look reasonable on its own.
- Day 0 LOI executed Deposit clock begins
$50,000 is due to escrow within five days.
- Day 15 APA draft targeted Buyer drafting milestone
The buyer intends to deliver the first purchase agreement draft.
- Day 45 Exclusivity may end No-shop protection expires
Protection ends unless the parties have reached a binding purchase agreement.
- Day 60 Feasibility period ends Diligence decision due
The LOI does not pause this clock for delayed seller materials.
- Day 90+ Target closing Up to two 30-day extensions
Each extension releases $15,000 of escrow to the seller.
What may affect cash required at closing
The purchase price is separated from financing sources, adjustments, and obligations that can change total uses.
| Item | Amount or treatment | What the LOI indicates |
|---|---|---|
| Base purchase price | $2,850,000 | Headline consideration for the acquired assets. |
| Buyer equity | $285,000 | Stated as 10% of the base purchase price. |
| Seller note | $350,000 | Five-year term; rate, security, and lender subordination remain to be documented. |
| Implied SBA proceeds | $2,215,000 | Before fees, inventory, adjustments, and other closing costs. |
| Inventory | Amount TBD | Purchased at cost in addition to the base purchase price. |
| Earnest deposit | $50,000 | Credited at closing; binding and refund mechanics should be reconciled. |
| Closing extension | $15,000 each | Released to the seller for each additional 30-day period. |
| Customer deposits | 50% retained by seller | Buyer assumes completion responsibility; the economic reconciliation is unclear. |
Issue spotting by transaction category
Expand a category to see the supporting language, why it matters, and the suggested owner.
Purchase Price and Asset Structure The LOI clearly states an asset purchase and a $2.85 million base purchase price.
Relevant LOI language Section 2
Buyer proposes to acquire substantially all operating assets of Main Street HVAC, LLC for $2,850,000.
Why it matters
The structure and headline economics give the parties a clear starting point for diligence and purchase-agreement drafting.
Suggested next step
Carry the included and excluded asset schedule into the purchase agreement and confirm treatment of contracts, vehicles, intellectual property, and assumed liabilities.
Best discussed with
Transaction counsel
Financing Contingency Closing remains subject to the buyer obtaining sufficient SBA financing.
Relevant LOI language Section 7(b)
Buyer securing financing in the amount necessary, satisfied when the lender has removed all conditions to funding its purchase money loan.
Why it matters
The buyer is not required to close before the financing needed for the acquisition is ready to fund.
Suggested next step
Confirm that the lender's process and expected closing conditions fit within the negotiated timeline.
Best discussed with
Buyer and lender
Inventory and Working Capital Inventory is additional consideration, while receivables, payables, cash, and a working-capital target are not clearly reconciled.
Relevant LOI language Sections 2(g)-(i)
Current inventory shall be purchased at Seller's cost. Cash and accounts receivable are excluded from the purchased assets.
Why it matters
The business may require cash immediately after closing if operating assets and liabilities do not transfer in a balanced way.
Suggested next step
Model the first 60 to 90 days of post-closing liquidity and define inventory, receivables, payables, deposits, and any working-capital adjustment.
Best discussed with
Buyer, lender, and financial advisor
Diligence Period and Information Access The buyer has broad access rights, but the 60-day clock starts at execution rather than after complete delivery of requested materials.
Relevant LOI language Sections 3 and 12
Buyer shall have sixty (60) days from mutual acceptance to conduct its feasibility studies and may request any information reasonably required.
Why it matters
Seller delays could reduce the buyer's usable review period without automatically extending diligence or exclusivity.
Suggested next step
Tie the diligence period to delivery of substantially complete requested information or add extension rights for delayed materials.
Best discussed with
Buyer and transaction counsel
Exclusivity The 45-day no-shop may end before the 60-day diligence period.
Relevant LOI language Section 6
Seller shall not negotiate with another party unless the parties do not reach a binding purchase and sale agreement within forty-five (45) days.
Why it matters
The buyer may continue incurring diligence and lender costs after the seller is free to re-enter the market.
Suggested next step
Align the no-shop period with diligence, financing, and purchase-agreement timing.
Best discussed with
Buyer and transaction counsel
Customer Deposits and Backlog The buyer assumes completion responsibility while the seller retains part of the related customer cash.
Relevant LOI language Section 2(i)
Seller shall retain fifty percent (50%) of customer deposits. Buyer shall collect the remainder and complete the work.
Why it matters
Existing deposits may not cover materials, labor, warranty work, refunds, and the expected margin on open jobs.
Suggested next step
Build a job-level backlog schedule and specify a closing reconciliation for deposits, materials, remaining costs, and liabilities.
Best discussed with
Buyer, financial advisor, and transaction counsel
Seller Transition The LOI provides four weeks of full-time training and six months of limited remote consulting.
Relevant LOI language Section 11
Seller shall provide four (4) weeks of full-time training and up to ten (10) hours per month of remote consulting for six (6) months.
Why it matters
Defined duration and availability create a practical baseline for customer, employee, vendor, and operational handoffs.
Suggested next step
Document the training schedule, expected topics, key relationships, and any paid support beyond the included hours.
Best discussed with
Buyer and seller
Binding Provisions and Deposit The deposit and extension-payment obligations are not listed among the provisions expressly identified as binding.
Relevant LOI language Sections 4, 5, and 15
This Letter is non-binding except with regard to Confidentiality and Exclusivity.
Why it matters
The parties should not have different expectations about obligations involving funds placed in escrow.
Suggested next step
Ask counsel to reconcile the deposit, refund, extension, termination, and binding-provision language.
Best discussed with
Transaction counsel
Earnout or Contingent Consideration No earnout or performance-based consideration is identified. The LOI presents a fixed-price structure instead.
Why it matters
An earnout is optional, not a required LOI term. Its absence is not a deficiency when the parties intend a fixed purchase price.
Suggested next step
No action is indicated unless contingent consideration was discussed outside the document.
Best discussed with
Buyer
A focused agenda for the deal team
Questions are routed to the person best positioned to resolve them.
Language and enforceability questions to resolve before execution.
- How should exclusivity be extended so it covers the full diligence and financing process?
- Are the deposit, refund, and extension-payment obligations intended to be binding?
- How should customer deposits, unfinished jobs, refunds, warranties, and cost overruns be allocated?
Funding assumptions that may change total uses and timing.
- Will inventory purchased in addition to the base price be included in the approved sources and uses?
- Do extension payments or released deposits affect required buyer equity?
- Does the 90-day target closing date allow enough time for underwriting and final conditions?
Items to quantify before relying on the stated economics.
- What customer deposits, materials, labor, and expected margin sit in the open-job backlog?
- How much inventory is usable, salable, and required to operate at close?
- What cash is needed after closing if receivables and cash are excluded but operating obligations continue?
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