An LOI arrives as a 6-page PDF. It looks like an offer. It isn't — it's a framework that locks you into a negotiating position for the next 90–120 days while the buyer runs diligence on everything you've built.
Most HVAC owners read the headline number, look at the structure column, and sign. The 12 terms below are the ones that will determine whether you walk away with what you expected.
The Four Terms That Set the Price
These are the terms that determine how much of the headline number actually lands in your account. Most HVAC sellers negotiate the multiple and ignore the mechanics. That's where value disappears.
Enterprise Value vs. Equity Value
Enterprise value is what the buyer says they're paying. Equity value is what lands in your account. The gap: assumed debt, working capital adjustments, and escrow holdbacks. A $9M EV offer on a business with $400K of vehicle loans and a $600K working capital shortfall closes at $8M in cash at close — before the escrow holdback. Never negotiate off enterprise value.
Working Capital Peg
The single most common source of post-LOI surprise. The buyer sets a “target” working capital level (usually trailing 12-month average). At close, if your actual working capital is below that target, the difference comes off the wire. Summer LOI + seasonal AR trough = $200K–$400K off the close figure. Ask for the specific peg methodology before you sign. See: The HVAC Working Capital Peg →
Earn-Out Structure
If any part of your consideration is earn-out, get the exact metrics, the measurement period, and who controls the inputs. Revenue-based earn-outs are better than EBITDA-based ones (EBITDA can be compressed by buyer overhead allocation post-close). A $1M earn-out with buyer-controlled inputs is not $1M — it's a number that depends on how aggressively they load your P&L. See: Earn-Out vs. Cash at Close →
Seller Note Terms
Interest rate, term, subordination language, and acceleration triggers. A seller note subordinated to the buyer's acquisition debt can't be enforced if the buyer defaults — you're last in line. Any seller note above $500K should be reviewed by M&A counsel before you sign the LOI, not the purchase agreement.
The Four Terms That Control the Process
These terms define the rules of the next 90–120 days. Once you sign, the buyer controls the clock. Understanding these provisions before you sign is the only time you have real leverage over the process.
Exclusivity Period
90–120 days is standard. During this window, you cannot negotiate with other buyers. The buyer will use it to run diligence and, frequently, to re-trade the deal — they've done the full P&L review now, and they find something. A shorter exclusivity window (60 days) is better. Ask for a milestone schedule: if they haven't delivered a purchase agreement draft by day 45, exclusivity terminates.
No-Shop Clause
Separate from exclusivity. The no-shop says you cannot actively solicit competing offers — it's often broader than the exclusivity window. Get the exact carve-outs: what happens if an unsolicited offer arrives? Most buyers will accept language allowing you to receive (but not solicit) competing offers during exclusivity.
Due Diligence Scope
What they're entitled to review. Full financial statements, tax returns, customer contracts, employment agreements, equipment lists, insurance certificates. The scope in the LOI usually becomes the diligence checklist. Any unusual add-ons — like rights to interview your top five technicians directly — flag that for your attorney. It can create retention risk before the deal closes.
Material Adverse Change (MAC) Clause
Defines what lets the buyer walk without penalty. Standard MAC language covers regulatory changes, industry-wide downturns, and major loss of revenue. The problem: some LOIs include overly broad MAC definitions that let buyers re-trade if your Q2 revenue is soft vs. a projection they set. Push for a specific dollar threshold: revenue or EBITDA must drop more than X% over Y months to trigger MAC.
The LOI Is Mostly Non-Binding — Except for the Parts That Aren't
Most LOI language says “non-binding.” But exclusivity, no-shop, confidentiality, and expense reimbursement provisions ARE binding. The binding sections are the ones that constrain you for the next 90–120 days and cost you money if the deal breaks. Read those sections with the same attention as the purchase agreement.
The Four Terms That Determine What You Keep
These terms govern what happens to your money after close. Most HVAC sellers focus on the close-day wire and treat escrow, non-competes, and consulting agreements as formalities. They aren't.
Escrow Holdback
10–15% of the deal value held for 12–18 months to cover post-close indemnification claims. The amount and release schedule are set here, not in the purchase agreement. Push for: tipping basket (not deductible), uncontested-amount release on schedule, and a specific dollar cap on indemnification liability (usually 15–25% of enterprise value for general reps, 100% cap for fundamental reps). See: HVAC Indemnification and Escrow →
Non-Compete Scope
Geography, duration, and covered services. 2–3 years is standard; 5 years is aggressive. The geography should reflect your actual market — a 100-mile radius is defensible for a single-market HVAC operator. Watch for "and any related trades" language that sweeps in plumbing and electrical if you hold those licenses. Carve out the right to retain passive investments and board seats in non-competing businesses.
Consulting Agreement
Most PE buyers require 6–24 months of transition consulting from the seller, often at a modest monthly rate. The non-compete continues through the consulting period. The risk: termination-for-convenience clauses that let the buyer end the consulting agreement (and stop paying) while the non-compete stays active. Negotiate: non-compete term reduces proportionally if the consulting agreement is terminated early by the buyer.
Representations and Warranties
The LOI will usually specify that you'll make "customary R&W representations" in the purchase agreement. Get the key R&W categories listed in the LOI — financial statements, material contracts, employee matters, litigation, environmental, title to assets. Any category that concerns you (equipment age, deferred maintenance history, open litigation) should be surfaced during LOI negotiations, not during purchase agreement review. Surprise disclosures after signing the purchase agreement give buyers re-trade leverage.
Know your valuation before the LOI conversation starts.
Free calculator takes 4 minutes. See your estimated HVAC business value and PE Readiness Score before a buyer sets the terms.
Run My Free Valuation →The LOI Review Checklist (Before You Sign)
Before signing any LOI, confirm you can answer these eight questions. If you can't answer all eight with specific numbers, not estimates, you are not ready to sign.
What is equity value (not enterprise value) at my actual close-date working capital?
What is the working capital peg methodology and what period does it reference?
What is the earn-out metric, who controls the inputs, and what is the measurement period?
What is the exact exclusivity duration and what milestone triggers termination?
What are the specific MAC thresholds?
What is the escrow amount, the basket type, and the release schedule?
What is the non-compete geography, duration, and covered-services definition?
Is there a termination-for-convenience clause in the consulting agreement?
The Cheapest Legal Advice You'll Ever Get
LOI review by M&A counsel costs $2,500–$5,000. The average re-trade after LOI signing — triggered by a vague MAC clause, an uncapped indemnification provision, or a working capital peg the seller didn't understand — costs $150K–$500K off the close figure. Spend the $2,500.
Frequently Asked Questions
Is an LOI legally binding?
Most LOI provisions are non-binding, but the exclusivity period, no-shop clause, confidentiality terms, and expense reimbursement provisions typically ARE binding and enforceable. Read those sections carefully — they constrain you for the duration of the exclusivity window.
How long is a typical HVAC LOI exclusivity period?
90–120 days is standard for PE-backed acquisitions. Smaller strategic buyers sometimes ask for 60 days. Negotiate for a milestone-based structure: if the buyer hasn't delivered a purchase agreement draft within 45 days, exclusivity terminates regardless of the clock.
Can I negotiate the LOI terms or is it take-it-or-leave-it?
Everything in an LOI is negotiable. The buyer expects you to mark it up. The key leverage point: the buyer has done enough diligence to write the LOI, which means they want this deal. That's your window. Most sellers give it up by accepting the first draft. Hire M&A counsel before you respond — not before you sign the purchase agreement.
OffRamp is a free valuation tool for HVAC business owners. We don't sell your information, represent buyers, or work on commission. The calculator and reports are educational tools — always consult a licensed M&A advisor before entering a sale process.