When diligence changes the price: the retrade

The short version

• A retrade is a request to change the price or terms after the letter of intent, usually because due diligence found something.
• It is fair when it is based on real findings. It damages trust when it is a tactic.
• Bring evidence, not just a lower number. Show what you found and how it changes the value.
• Consider changing terms instead of price: a seller note, money held back or a rebate.
• Be ready to walk away if the gap cannot close, and to close if it can.

When a retrade is fair

Due diligence exists to find out whether the business is what you were told. A retrade is fair when it reflects something real:

• Earnings lower than presented, or add-backs that do not hold up.
• A customer who has left or is leaving.
• Equipment that needs replacing sooner than disclosed.
• A lender's valuation below the agreed price.
• An undisclosed liability.

When it is not

Lowering the price late simply because the seller has stopped talking to other buyers is a tactic. Sellers and brokers recognize it. It can end the deal, and it travels: brokers talk to each other.

How to raise it

1. Put it in writing, with the specific findings and the numbers behind them.
2. Show how you got to the new number. For example, the earnings change multiplied by the multiple in your offer.
3. Propose solutions, not just a cut.
4. Raise it quickly, as soon as you know.

Terms instead of price

• A seller note, or a larger one, so the seller shares the risk.
• Money held back until a specific risk passes.
• A rebate tied to the concern, for SBA buyers. Lesson 6.4 covers it.
• A longer handover, if the concern is the owner's role.

Know your limits

Before you raise a retrade, know the most you can pay now, and whether you would walk away. Your ceiling from Lesson 3.4 still applies.