Quick answer: A retrade is a buyer’s attempt, after the letter of intent is signed, to lower the price or tighten terms. It is fair when it follows new, documented information, such as a rejected add-back or a higher working capital target, and tactical when it re-argues facts the buyer knew or arrives without support. Sellers respond by classifying the request, separating the amount from the route, offering narrower remedies than a price cut, and preparing to walk away.
Key points
- The price in a letter of intent is generally non-binding, while exclusivity binds the seller, so a buyer’s leverage to renegotiate grows after signing.
- A fair retrade rests on new, documented facts and a change in proportion to them. A tactical one re-argues facts the buyer knew, arrives without support or stacks a multiple cut on an earnings cut.
- The best defense is preparation: run the buyer’s tests first, disclose weaknesses early and write the basis of the price into the letter.
- A narrower remedy, such as an escrow or a specific indemnity, often answers a real risk at lower cost than a price cut, and a pattern of retrades is a reason to walk.
What a retrade is and why the letter of intent allows one
A retrade is a buyer’s request, after the letter of intent is signed, to lower the price or move terms in its favor. The letter makes it possible. Price and most terms in it are generally non-binding, while exclusivity binds the seller, so the buyer’s leverage rises on the day the seller stops talking to other bidders. The guide to reading a letter of intent lists the terms, and the guide to exclusivity explains the clause that shifts the balance.
Not every adjustment after the letter is a retrade. The working capital true-up, the debt and cash adjustments and the earnout calculation follow formulas the parties agreed, and applying them is the deal working as written. A retrade changes the deal the letter described. The decision rule is a classification. A retrade is fair when it follows new, documented information that the price did not assume, and tactical when it re-argues what the buyer knew or arrives without support. The classification decides the reply, because a seller can concede a fair adjustment quickly and still defend the rest.
Triggers, and when each is fair or tactical
These are the usual triggers.
| Trigger | Fair when | Tactical when | First response |
|---|---|---|---|
| Quality of earnings findings: rejected add-backs, cut-off errors, unbooked costs | The finding is new, documented and measured correctly | The add-back was in the CIM and discussed, or a one-time item is multiplied | Ask for the schedule and support, compare it with what was disclosed, and argue the route |
| Working capital target | Monthly balances show seasonality that the seller’s average missed | The method differs from the one in the letter | Rebuild the monthly series and hold the buyer to the letter’s method |
| Debt-like items | The item is a real obligation within the letter’s definition | The list grows beyond the definition | Go line by line against the letter |
| Customer calls and concentration | A customer states a real intent to leave or reprice | One lukewarm comment becomes a general haircut or a multiple cut | Obtain the contract and tenure, and offer a retention escrow tied to that customer |
| A weak month or quarter after the letter | The decline is structural and continues | Seasonality or timing is treated as a trend | Bridge the months, show the run rate and offer protection tied to later results |
| Legal or environmental findings | The exposure is real and can be measured | A remote risk is priced as if certain | Propose a specific indemnity or escrow instead of a price cut |
| Terms creep: larger escrow, longer restriction, more earnout, broader statements | It follows a finding | It appears in the first draft with no finding | Compare the draft with the letter line by line |
| The buyer’s financing or approval | The seller’s own disclosures changed what a lender will fund | A lender or committee caps the offer and the buyer asks the seller to fill the gap | Ask for the lender’s position and the buyer’s other sources |
Two tests apply to every row. Proportion asks whether the change equals the effect of the finding or stacks a multiple cut on an earnings cut. Pattern asks whether the request arrived as one package soon after the finding or in stages late in exclusivity. The guides to debt and debt-like items and to customer diligence go deeper on two of the rows.
Preparing so that findings are not a surprise
A buyer with nothing new to point to has little to ask for, so preparation is the main defense.
- Run the buyer’s tests first. A sell-side quality of earnings report finds add-back, cut-off and accrual problems before the buyer does, and the guide to findings that reduce price lists them.
- Disclose weaknesses early, with the explanation. A customer concentration, a weak quarter or a one-off cost mentioned in the information memorandum and the management meeting is part of the offer the buyer chose to make. The same fact found in diligence is a finding.
- Write the baseline into the letter. Ask the buyer to state the adjusted EBITDA it is pricing, the add-backs it accepts, the working capital method, the debt-like items and the known issues it has already priced, so that any later change has a written starting point.
- Keep performing, and report first. If a month misses, tell the buyer before its accountants find it, and give the reason.
- Keep a runner-up interested. Leverage returns only when the alternative is credible.
A response playbook
- Ask for the finding in writing. What was found, where in the records, how the figure was calculated and which assumption in the letter it changes. A buyer with a real finding answers quickly, and one without tends to answer in general terms.
- Classify it. Is the information new, is it supported, is the change proportionate, and is it part of a pattern?
- Read the letter and the exclusivity clause. Check what the price assumed, how far any “subject to diligence” wording reaches, and whether a price change lets the seller end exclusivity.
- Separate the amount from the route. A dollar of lower EBITDA is multiplied by the multiple, while a deduction or a working capital adjustment, explained in the peg guide, moves price dollar for dollar. A one-time item belongs in a deduction.
- Offer a narrower remedy. An escrow, a specific indemnity, an earnout on the disputed piece or a price change limited to the proven amount answers a real risk without cutting the price for a risk that may never occur.
- Move to the principals. When advisors have traded positions, the owner and the buyer’s decision maker should speak, with the advisors present.
- Set a date and decide. Accept what is fair, counter what is not, or end the process. The date should fall inside the exclusivity period, not at its edge.
Illustrative example: A fair finding and a tactical one
A letter of intent prices a company at 6.0x adjusted EBITDA of $2,500,000, which is $15,000,000, and the information memorandum disclosed that one customer provides a large share of revenue. After the letter, the buyer’s accountants report that $100,000 of add-backs lack support. The buyer then proposes to remove them and also to cut the multiple to 5.5x because of customer concentration.
| Step | Adjusted EBITDA | Multiple | Price | Change from the letter |
|---|---|---|---|---|
| Letter of intent | $2,500,000 | 6.0x | $15,000,000 | |
| Unsupported add-backs removed (fair) | $2,400,000 | 6.0x | $14,400,000 | ($600,000) |
| Buyer’s proposal with the multiple cut | $2,400,000 | 5.5x | $13,200,000 | ($1,800,000) |
| Seller’s counter: accept the first change, escrow the second | $2,400,000 | 6.0x | $14,400,000 | ($600,000) |
The first change follows a documented finding, so the seller accepts it. The second prices a risk the buyer knew about when it signed, and the seller answers with a $500,000 escrow that is released if the customer renews. That leaves $13,900,000 at closing and up to $14,400,000 in total, against the buyer’s $13,200,000: $700,000 more at closing and $1,200,000 more if the customer renews. The figures are invented to show the mechanics and are not benchmarks.
When to walk away
Walking away is a business decision, and it starts with the alternative. Compare the revised offer on net proceeds and certainty with the best realistic options: a runner-up bid, a relaunch after fixing the cause, a different structure, or keeping the business. The number at which the owner would stop is best set with the advisor before the process begins, because the end of exclusivity is a poor time to find it.
Several signs point toward leaving: a second retrade after the first was accepted, a request with no support, terms that move more risk to the seller than the finding justifies, a financing gap the seller is asked to fill, or a demand for a decision before the documents arrive. Accepting a pattern teaches the buyer that pressure works. Ending the process has costs too, in time, fees and the questions later buyers will ask, as the guide to why business sales fall apart describes. Counsel should review the exclusivity and confidentiality terms before any contact with another bidder. The guide to how to sell a business places this stage among the decisions of a sale. This guide is general education and not legal advice.
Frequently asked questions
What is a retrade in M&A?
A retrade is a buyer’s request, after a letter of intent is signed, to lower the price or change terms in its favor. Many follow diligence findings. The word is also used for pressure applied after the seller has lost its alternatives. Adjustments that follow agreed formulas, such as the working capital true-up, are not retrades.
Can a buyer lower the price after signing a letter of intent?
Yes, because price and most terms in a letter are generally non-binding. A buyer that wants less must usually point to a reason, and a seller that can show the basis of the price, the support for its numbers and a credible alternative is in a stronger position. An attorney should read which parts of the letter bind.
How can a seller prevent a retrade?
A seller cannot remove the risk but can reduce it. Run the buyer’s tests before launch, disclose weaknesses with explanations before the letter is signed, write the basis of the price into the letter, keep the business on plan and keep a runner-up. A buyer with nothing new to point to has less to ask for.
What should a seller do when a buyer asks for a lower price after the LOI?
Ask for the finding in writing with its calculation and support, check it against what the buyer knew when it signed, separate the amount from how it reaches price, and offer a narrower remedy such as an escrow or specific indemnity. Then bring the principals together and set a date for a decision.
When should a seller walk away from a revised offer?
When the revised offer is worse than the seller’s best realistic alternative on net proceeds and certainty, when the request has no support, when a second retrade follows the first, or when the buyer’s financing is the real gap. The walk-away number is best set before the process starts, with the advisor and counsel.
Thinking about a sale or an acquisition?
The Impetus Group provides sell-side and buy-side M&A advisory, from preparation and buyer outreach to negotiation and closing. A transactional valuation is often the first step, scoped and priced separately.
Related guides
- Quality of Earnings Report: What It Is and What Buyers Test: A quality of earnings report tests whether a company’s reported profit is real and repeatable. See what buyers examine, how it affects price and how sellers prepare.
- Exclusivity and No-Shop Provisions in a Business Sale: Length, Terms and Trade-Offs: Exclusivity bars a seller from talking to other buyers after a letter of intent. See what a no-shop restricts, how long it should run and what to ask in return.
- Sell-Side Quality of Earnings Report: Scope, Timing and How to Use It: What a sell-side quality of earnings report covers, when an owner should commission it, who should perform it and how to use it in the CIM and with buyers.
- Quality of Earnings Findings That Reduce Price and How to Pre-Empt Them: The quality of earnings findings that most often lower a sale price, such as rejected add-backs and cut-off errors, with how each appears and how to pre-empt it.
- How to Read a Letter of Intent: The Terms That Decide What You Receive: A plain-language guide to the letter of intent in a business sale: price, structure, working capital, exclusivity, diligence and the terms that move your proceeds.
- How Long Does It Take to Sell a Business? Phase by Phase: How long a business sale takes depends on its slowest phase. See what controls each stage, where delays occur and what shortens the path.
This guide is general education. It is not a valuation opinion, appraisal, investment advice, or legal or tax advice. How these guides are made.