Create a first draft of a Letter of Intent for an MSP acquisition, IT services business acquisition, MSSP acquisition, or hosting/IaaS transaction.
This MSP LOI Generator walks through common acquisition terms, including purchase price, seller financing, earnouts, working capital, due diligence, exclusivity, transition support, confidentiality, governing law, and termination. The goal is to provide a practical starting point before moving into definitive agreements.
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Create a first draft of a Letter of Intent for an MSP acquisition. Complete the fields below, then generate and optionally polish the LOI with AI.
The sections below explain common terms used in letters of intent for MSP acquisitions, IT services business acquisitions, and hosting/IaaS transactions.
An introductory paragraph is optional, but it can make the LOI feel more personal and professional. This section is a good place to thank the seller for their time, acknowledge the business they have built, and briefly explain why the buyer may be a strong fit for the opportunity.
A strong introductory paragraph may include:
The transaction type determines whether the buyer is proposing an asset purchase or a share purchase.
In an asset purchase, the buyer acquires selected assets of the business. In MSP transactions, this often includes the customer list, recurring revenue stream, goodwill, contracts to the extent assignable, equipment, intellectual property, vendor relationships, systems, and other operating assets. Asset purchases are generally simpler, quicker, lower-cost, and lower-risk for buyers because the buyer is not acquiring the entire legal entity and all of its historical liabilities.
Because of that, the overwhelming majority of offers for small and lower-middle-market MSPs are structured as asset purchases. Sellers should expect most buyers to propose an asset purchase unless there is a specific reason to use a share purchase structure.
In a share purchase, sometimes called a stock sale, the buyer acquires the ownership interests of the company itself. This generally means the buyer acquires the company as a whole, including its assets and liabilities. Share purchases may have different tax implications and can be more complex from a legal, diligence, and risk-allocation standpoint.
The right structure depends on the specifics of the transaction. Buyers and sellers should consult legal and tax advisors, especially when comparing an asset purchase against a share purchase.
The total valuation or purchase price should reflect the full proposed value of the transaction. This should include the total amount the seller may receive across all forms of consideration, including cash at closing, seller financing, earnout, rollover equity, or retained equity.
For example, if the offer includes $700,000 in cash at closing, $200,000 in seller financing, and a $100,000 earnout, the total valuation / purchase price would be $1,000,000.
Payment terms have a direct impact on valuation. Offers with more certainty for the seller, such as a larger upfront cash payment, typically land toward the lower end of a valuation range. Offers that include contingent consideration, earnouts, seller financing, rollover equity, or other mechanisms that reduce buyer risk can often support a higher total purchase price.
If you are unsure what valuation to use, you can use our MSP Valuation Calculator to gut check your valuation and assess whether your offer is likely to be viewed as competitive.
Not every asset, customer, or contract needs to be included in the proposed transaction. This field is used to identify any carveouts or exceptions that should be excluded from the acquisition.
Common examples may include personal vehicles, personal laptops, personal phones, personal phone numbers, personal email addresses, real estate, unrelated business lines, or other assets the seller intends to retain.
For MSP transactions, this field can also be used to identify specific customers that the seller wishes to retain or that the buyer does not wish to acquire.
A working capital clause addresses whether the business is expected to be delivered with a normal level of net working capital at closing. Net working capital generally refers to current assets minus current liabilities, such as accounts receivable, prepaid expenses, accounts payable, accrued expenses, and deferred revenue.
Net working capital pegs are typically used as a true-up mechanism. The parties agree on a target working capital amount, then compare the actual working capital delivered at closing against that target. Any shortfall or excess may result in an adjustment to the purchase price.
If the seller is expected to deliver a specific amount of net working capital, that effectively reduces the seller’s net proceeds by the same amount. For example, if the purchase price is $1,000,000 and the seller must leave $100,000 of net working capital in the business, the seller is effectively receiving $900,000 after accounting for the required working capital contribution.
Working capital clauses are more common in share purchases than asset purchases. For MSPs, a common approach is to use approximately one month of operating expenses as the net working capital peg, though the appropriate amount depends on the company’s specific financial profile.
For asset purchases, we generally prefer simpler true-up mechanisms instead of a traditional net working capital peg. For example, the parties may agree to a short post-closing true-up period, with a resulting true-up payment based on specific receivables, deferred revenue, prepaid expenses, payables, or other agreed items.
The net working capital peg, calculation method, and adjustment process should typically be reviewed by an accountant or attorney before the LOI is finalized.
The funding source explains how the buyer expects to fund the proposed acquisition. This matters because financing can affect timing, certainty, due diligence requirements, and how competitive the offer appears to the seller.
Cash on hand is generally the simplest and fastest funding source. If the buyer has sufficient cash available, there are fewer outside approvals, fewer lender requirements, and often a shorter path to closing.
SBA loans are commonly used in small business acquisitions, including MSP transactions, but they are usually the most complicated funding source. SBA-financed deals often involve multiple decision makers, including the buyer, the bank, and a third-party valuation provider. SBA lenders may also require a quality of earnings review or other detailed financial diligence. As a result, SBA due diligence is typically more in-depth and the process often takes longer.
Other funding sources may include a conventional loan, private investment, seller financing, or a mixed structure. The buyer should choose the option that best reflects how they realistically expect to fund the transaction.
Seller financing means the seller agrees to receive a portion of the purchase price after closing, rather than receiving the full amount upfront. This may also be referred to as a seller’s note, vendor take-back note, VTB, promissory note, deferred payment, vendor financing, or holdback. Seller financing is different from an earnout because the payment is generally owed after closing, while an earnout is typically contingent on future performance.
Buyers often use seller financing to reduce the amount of cash required at closing, allow the acquisition to be partially funded from future business cash flow, align incentives after the sale, and reduce risk if issues arise after closing. Sellers may accept seller financing when they are comfortable with the buyer’s credibility, the proposed repayment terms, and the overall economics of the offer.
Seller financing can affect valuation. Offers with a larger seller-financed component generally involve more risk for the seller than all-cash offers. In many MSP transactions, seller financing is used for a minority portion of the total valuation, often 10% to 40%. If too much of the purchase price is pushed into seller financing, the offer may be viewed as less competitive.
Common seller financing terms include the principal amount, interest rate, payment frequency, number of payments, maturity date, prepayment rights, security, guarantees, default remedies, and whether the note is subordinated to senior debt. These details are typically finalized in the purchase agreement.
An earnout is a portion of the purchase price that is paid after closing only if specific future performance targets are met. Earnouts are different from seller financing because seller financing is generally owed after closing, while an earnout is contingent on future performance.
More so than in other industries, MSP buyers often use earnouts to bridge valuation gaps, reduce risk, and align part of the purchase price with future business performance. Sellers may accept an earnout if they believe the business will continue performing well after closing and the earnout criteria are clearly defined.
For MSP transactions, common earnout metrics may include revenue retention, MRR retention, customer retention, contract conversion, or EBITDA / SDE. The calculation should be as clear and objective as possible. We generally prefer revenue-based earnouts because revenue is usually less subjective than EBITDA. EBITDA-based earnouts can create disputes because the parties may disagree about which expenses are appropriate for the buyer to adopt after closing.
If there is significant customer concentration, the earnout can sometimes be tied to specific large customers renewing their contracts. This can be a useful structure because contract renewal is usually more cut-and-dry than a subjective financial calculation.
Earnouts are not permitted when SBA financing is being used.
Earnout terms should be drafted carefully. The purchase agreement should clearly define the metric, measurement period, payment timing, calculation method, and any exclusions or adjustments.
The due diligence period is the amount of time the buyer has to review the business before moving forward with a definitive purchase agreement and closing. This typically includes financial, legal, operational, customer, employee, vendor, and technical review.
For many MSP transactions, 90 days is typical. If the buyer is funding the transaction with cash on hand, 60 days may be reasonable. If the buyer is using SBA financing, a longer period of 120 to 180 days should be expected.
This period also typically reflects the exclusivity period. During that time, the seller generally agrees not to solicit or negotiate with other buyers while the buyer works through diligence and documentation.
Toward the end of due diligence, the parties should also account for the purchase agreement negotiation process. It commonly takes the attorneys for each side around three weeks to negotiate the purchase agreement and related transaction documents.
The termination clause defines when either party can walk away from the LOI before a definitive purchase agreement is signed. The default Mutual option allows either party to terminate the LOI and withdraw from the proposed transaction, with or without cause, by providing written notice to the other party.
This type of mutual termination language is common because an LOI is usually intended to be an interim document. If diligence findings, financing, legal review, or deal negotiations do not support moving forward, either party may need the ability to stop the process before signing a binding purchase agreement.
Some buyers request a break fee to protect against unreimbursed transaction costs. For example, a buyer may invest in legal fees, accounting diligence, lender work, and other transaction expenses, only for the seller to terminate the process without a clearly defined business reason.
We generally do not recommend break fees in this type of LOI. They can be messy, create legal disputes, and are often triggered only if a party terminates “without cause,” which can be difficult to define. In most cases, it is cleaner for the parties to preserve flexibility, act in good faith, and simply walk away if the deal is no longer a fit.
If you choose Custom, the custom termination language will replace the default mutual termination clause. Because termination provisions may be treated as binding, any custom termination language should be reviewed by an attorney before the LOI is finalized.
A non-compete is intended to prevent the seller from starting, joining, or acquiring a competing business shortly after the transaction. In MSP acquisitions, a three-year non-compete is common, with some transactions using periods of up to five years.
Non-compete enforceability varies significantly by jurisdiction. In general, the restriction should not be overly broad. It should be limited to competing businesses within a relevant competitive geography.
The non-compete is typically finalized in the purchase agreement and accompanied by a non-solicit covenant. These restrictions should be reviewed with an attorney at that stage.
The transition period is the amount of time the seller is expected to assist the buyer after closing. In many MSP transactions, this transition support is unpaid because the compensation is already reflected in the purchase price.
A common transition period is six months, although it can vary from approximately two to twelve months depending on the size and complexity of the business. The seller’s involvement is usually heaviest during the first month or two after closing, then tapers off as the buyer becomes familiar with the customers, systems, employees, vendors, and operating procedures.
In some transactions, the purchase agreement may divide the transition into phases. For example, Phase 1 may include more defined responsibilities to ensure the most important transition items are completed early, while Phase 2 may involve more limited, as-needed availability.
After the transition period, the buyer may or may not offer the seller a paid consulting agreement or other post-closing role.
This MSP LOI Generator is provided for informational and drafting-assistance purposes only. It was created by non-lawyers and does not constitute legal advice. It is not intended to replace, substitute for, or supplant advice from a qualified attorney.
The output generated by this tool has not been tested in court and should not be relied upon as legally sufficient, enforceable, or appropriate for any specific transaction without further review. The generated LOI is intended to serve only as a rough draft and starting point for discussion.
Users are strongly encouraged to consult an attorney before sending, signing, or relying on any Letter of Intent generated by this tool. While LOIs are generally intended to be non-binding, certain provisions may be binding, including provisions related to confidentiality, exclusivity, termination, governing law, fees and expenses, and any other terms expressly identified as binding. Particular attention should be paid to these binding clauses and their legal consequences before the LOI is finalized or executed.