Download The 2025 M&A Report For Free!
Your download is on the way to your email inbox!
Please make sure your email is typed corectly.
All information is protected & secure.
The first half of 2024 has brought a major and significant slowdown in carwash M&A, along with a stark decrease in the dispersion of acquiring parties. Transaction count is down ~46% and the number of sites sold and acquired is down nearly 40%, both compared to the first half of 2023. By way of most active acquirers, 2024 posted a large increase in deal concentration. Most notably, during the first half of 2023, the most active acquiror by transaction count was El Car Wash, having been the acquiring group in just 11% of the announced transactions. The first half of 2024 had Whistle Express representing a commanding 43% of deals as the acquiring group. In this industry report, we cover all announced M&A transactions in Q2 and provide a candid overview of market trends.
An LOI stands for "Letter of Intent." It is a formal document used in business transactions, particularly during the preliminary stages of negotiations between two parties. The Letter of Intent outlines the key terms and conditions that both parties intend to include in a formal agreement, such as a purchase agreement.
While an LOI is not a legally binding contract, it serves as a written expression of the parties' intentions and acts as a roadmap for further negotiations. The document typically includes important details like the purchase price, key terms of the transaction, due diligence requirements, and any other significant legal aspects that both parties agree to prioritize negotiating.
While the specifics can vary based on the nature of the transaction, here are some common elements found in an LOI:
Introduction and Background:
Transaction Overview:
Purchase Price and Payment Terms:
Due Diligence:
Conditions Precedent:
Confidentiality and Exclusivity:
Governing Law and Dispute Resolution:
Timing and Milestones:
Termination Clauses:
Binding or Non-Binding Language:
The LOI is used in mergers and acquisitions to establish a framework before moving into more detailed and legally binding agreements. It's crucial for both parties to carefully review and negotiate the terms of the LOI before moving forward, as the document serves as a foundation for subsequent formal agreements. It's also recommended for parties to seek legal advice during this stage to ensure their interests are protected.
Frequently Asked Questions About Letters of Intent
What is a Letter of Intent?
A Letter of Intent, often called an LOI, is a formal document used in business transactions to outline the key terms that two parties intend to negotiate further. In an M&A process, an LOI typically lays out the proposed purchase price, transaction structure, due diligence process, timing, confidentiality terms, and other important deal points before the parties move toward a final purchase agreement.
Is a Letter of Intent legally binding?
In most M&A transactions, an LOI is mostly non-binding. This means the parties are generally not required to complete the transaction based only on the LOI. However, certain sections may be binding, such as confidentiality, exclusivity, governing law, expenses, or dispute resolution provisions. Because of this, both buyers and sellers should review the LOI carefully before signing.
What is the purpose of an LOI in M&A?
The purpose of an LOI is to create a roadmap for the transaction before the parties invest more time and resources into due diligence, legal documents, and final negotiations. It helps both sides confirm the major deal terms, identify potential issues early, and establish a process for moving forward.
What should be included in a Letter of Intent?
A Letter of Intent commonly includes the names of the parties, transaction overview, purchase price, payment terms, due diligence requirements, conditions to closing, confidentiality language, exclusivity terms, timing and milestones, termination rights, and whether the LOI is binding or non-binding. The exact contents depend on the transaction and the priorities of the buyer and seller.
How is an LOI different from an Indication of Interest?
An Indication of Interest, or IOI, is usually earlier and less formal than an LOI. An IOI often shows preliminary interest and may include a valuation range or broad terms. An LOI usually comes later, after more information has been reviewed, and includes more specific deal terms that serve as the foundation for the next stage of the transaction.
Does an LOI include the purchase price?
Yes. An LOI typically includes the proposed purchase price or a more specific financial structure for the transaction. It may also explain how the price will be paid, whether there will be seller financing, whether working capital adjustments apply, and whether any portion of the proceeds will be held back, escrowed, or tied to future performance.
What does due diligence mean in an LOI?
Due diligence is the buyer's review of the business before finalizing the transaction. In a car wash M&A deal, due diligence may include reviewing financial statements, tax returns, sales reports, customer data, equipment, leases, real estate, permits, contracts, employees, environmental matters, and operational performance. The LOI often outlines the scope and timing of that review.
Why is exclusivity included in some LOIs?
Exclusivity gives the buyer a set period of time to evaluate the business without the seller negotiating with other potential buyers. Buyers often request exclusivity because they are about to spend time and money on due diligence, legal review, financing, and transaction planning. Sellers should be careful with exclusivity because it can limit their ability to pursue other offers during that period.
Should a seller sign an LOI?
A seller should only sign an LOI after carefully reviewing the proposed terms and understanding what is binding and non-binding. Even if the LOI does not force the seller to close the transaction, it can shape the rest of the negotiation. Sellers should evaluate the purchase price, structure, contingencies, timing, exclusivity, due diligence requirements, and buyer credibility before signing.
Can an LOI be negotiated?
Yes. An LOI can and often should be negotiated before it is signed. Buyers and sellers may negotiate the purchase price, payment structure, due diligence period, exclusivity period, closing conditions, termination rights, confidentiality language, and other key terms. Once signed, the LOI often becomes the framework for the final purchase agreement.
What happens after a Letter of Intent is signed?
After an LOI is signed, the transaction usually moves into deeper due diligence and preparation of definitive legal documents. The buyer reviews the business in more detail, the parties work through financing and closing conditions, and attorneys begin drafting the purchase agreement and related transaction documents. If due diligence is satisfactory, the parties may continue toward closing.
Does signing an LOI mean the deal will close?
No. Signing an LOI does not guarantee that the deal will close. The transaction may still depend on due diligence, financing, legal review, regulatory approvals, lease or real estate matters, and negotiation of the final purchase agreement. The LOI is an important step, but it is not the same as a completed sale.
What are conditions precedent in an LOI?
Conditions precedent are requirements that must be satisfied before the transaction can move forward or close. These may include satisfactory due diligence, financing approval, landlord consent, regulatory approval, environmental review, title review, or execution of final legal agreements. Conditions precedent help clarify what must happen before the parties are expected to complete the deal.
Why is the LOI important when selling a car wash?
The LOI is important because it sets the tone and structure for the rest of the sale process. For car wash owners, the LOI can define the proposed price, deal structure, due diligence expectations, exclusivity period, timing, and major legal points that will later be addressed in the purchase agreement. A well-reviewed LOI can help reduce confusion and protect the seller's position as the transaction moves forward.
Should an attorney review a Letter of Intent?
Yes. Even when an LOI is mostly non-binding, it can include binding provisions and can heavily influence the final purchase agreement. An attorney can help identify legal risks, clarify obligations, review exclusivity and confidentiality language, and make sure the seller or buyer understands the consequences of signing.
Car Wash Advisory is an M&A firm dedicated to serving the car wash industry. Contact us to learn more or to speak to our car wash brokers.
The Definitive Quick Guide: Created and Written by Car Wash Advisory Team
The key reasons using an investment bank to sell your business during economic uncertainty is a strategic decision.
