Most HVAC owners treat the LOI as a formality. PE buyers treat it as the negotiation. The gap between those two mindsets is where sellers leave money on the table — sometimes a lot of it.
By the time the definitive purchase agreement arrives, your negotiating position has weakened. You've been through 60–90 days of exclusivity. Your management team knows a deal is in progress. You want this to close. PE knows all of this — and the terms reflect it.
The time to negotiate is before you sign the LOI. Here's what to fight for.
What's Actually in an LOI (and What's Usually Missing)
PE LOIs follow a standard template. Here's what they include — and what sellers consistently overlook.
| Term | What PE Includes | What Sellers Often Miss |
|---|---|---|
| Purchase price | Headline number (total) | How much is cash at close vs. roll-over equity vs. earn-out |
| Exclusivity | 60–90 day standard | Whether there's a carve-out for unsolicited bids |
| Representations & warranties | "Subject to due diligence" | Scope of reps, survival period, indemnification cap |
| Management retention | "Key employee" language | Specific roles, salary, and timeline |
| Working capital peg | "Normalized working capital" | How "normalized" is defined — this is where surprises happen |
| Break-up provisions | Usually absent from seller's first draft | Whether the buyer owes anything if they walk post-exclusivity |
The 4 LOI Terms Worth Negotiating Hard
Not every LOI term is worth a fight. These four are.
The Purchase Price Mix
Cash at close vs. roll-over equity vs. earn-out isn't just structure — it's risk transfer. PE buyers use earn-outs and roll-over equity to shift their risk onto sellers. A headline number of $8M that's 60% cash at close is a fundamentally different deal than $8M with only 40% at close and the rest contingent.
Negotiate the cash-at-close floor first. Everything else is contingent consideration — and contingent consideration carries real risk of non-payment.
Exclusivity Window Length
60 days is standard. 90+ days is aggressive. Every extra week of exclusivity is a week PE can run diligence hard, find issues, and build a case for a price reduction before you can talk to any other buyer.
Push for 45 days with a single 15-day extension requiring mutual written consent. If PE needs more time, they can ask — and you can evaluate whether re-trading is likely before you agree.
Working Capital Definition
“Normalized” working capital can mean whatever PE's accountants want it to mean during diligence. A trailing 12-month average that includes your seasonally strong months can set a working capital target you can't realistically deliver at close — triggering a dollar-for-dollar price reduction.
Get the definition in writing at LOI stage. A vague working capital peg has cost HVAC sellers six figures at close. It's not a detail you can clean up later.
Indemnification Cap and Survival Period
Reps & warranties indemnification is usually capped at 10–15% of deal value. PE will push for higher caps and longer survival periods — meaning they can claw back more money, for longer, if problems surface post-close.
The LOI should establish the framework. At minimum, push to exclude the indemnification cap from “subject to negotiation in the definitive agreement” language. If you don't anchor it now, PE's lawyers will anchor it later — in their favor.
Red Lines — What to Walk Away From
Most LOI terms are negotiable. These three are structural issues that don't get better later.
No cap on indemnification.
If PE won't agree to any cap on seller liability, that's a structural signal that they expect to find problems and use the representations to claw back. An uncapped indemnification clause means you could be on the hook for more than you received. Walk.
Earn-out > 30% of total deal value.
At this level, you're not selling a business — you're entering a performance contract with the buyer as your employer. The risks of earn-out structures compound when they represent a large share of your proceeds. For a detailed breakdown of the traps, see the earn-out structures post.
No break-up fee.
If PE can walk after 90 days of exclusivity with no consequence, they've gotten free diligence. They've seen your financials, your customer list, your operational structure. You gave up 90 days of leverage and received nothing in return. Negotiate a minimal break-up fee ($25K–$100K depending on deal size) or at minimum a reimbursement of your diligence costs if they walk post-exclusivity.
The Working Capital Trap
The #1 Way PE Re-Trades HVAC Deals at Close
Working capital adjustments are the most common source of price reduction between LOI and close. PE accountants define “normalized working capital” during diligence — often using a trailing 12-month average that happens to include your seasonally strong months. If your business runs lean in the off-season, your actual working capital at close may fall below that inflated peg — and the difference comes straight out of your wire. Get the definition in writing, in the LOI, before exclusivity starts.
A working capital target set using peak-season months creates a structural trap: you're almost certain to miss it at close unless you happen to close during your busiest period. PE knows this. Their accountants have done dozens of these deals. You haven't.
The fix is straightforward but must happen at LOI stage: define “normalized” using a methodology you and your CPA agree is fair — a rolling average that excludes obvious seasonal outliers, or a specific 12-month period that reflects the business's true operating baseline.
How to Prepare Your LOI Response
Don't sign the first draft.
The first draft is PE's opening position. Every term in it is negotiable. Signing without a single redline signals that you don't understand what you're signing — and sets a precedent for the rest of the deal process.
Get an M&A attorney with HVAC or home services experience.
Not just any M&A attorney — one who has closed HVAC or home services deals specifically. They'll recognize the working capital trap and indemnification structure before you're locked in.
Have your CPA review the working capital peg.
Before you respond to the LOI, your accountant should review the proposed working capital definition against your trailing 12–24 months of actuals. If the peg is above your off-season working capital level, negotiate it down now.
Stress-test what PE will find in diligence.
The 50 diligence questions post walks through every question PE buyers ask. Know your exposures before they find them — because diligence findings become re-trade ammunition.
Know your walk-away number before any negotiation starts.
If you don't have a clear floor — the minimum all-in number that works for your goals — you'll be negotiating against an opponent who does. Define it before the first call, not after the LOI lands.
Frequently Asked Questions
Is an LOI binding in an HVAC PE deal?
Most LOIs are non-binding on price and terms but binding on exclusivity and confidentiality. That's the trap — you're locked in while the buyer isn't on the parts that matter most to you.
How long does exclusivity typically last in an HVAC acquisition?
Standard is 60–90 days. Push for 45 with a single 15-day extension. Every extra week of exclusivity shifts leverage to the buyer.
What is a working capital peg in an HVAC deal?
It's the target level of working capital the business is expected to deliver at close. If the actual working capital at close is below the peg, the difference is deducted from the purchase price. Getting the definition in writing at LOI stage is essential.
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.