Deciding whether to ask for a price reduction or change to LOI terms
April 05, 2025
by a searcher from University of Pennsylvania - The Wharton School in Sacramento, CA, USA
Hi all,
We're under LOI and wrapping up due diligence. We are impressed with the business and everything has checked out great. Except for one thing -- the broker made an honest mistake and double-counted an addback that was already included in another expense line. We uncovered this while diligencing the payroll documents. So, SDE was overstated by 10% in the marketing materials.
Do you renegotiate the LOI price here? I really don't want to be 'that' buyer. Especially when the seller has been very honest and on point with all information -- just that her broker added things up incorrectly. At the same time, you can't use bloated numbers in your marketing and expect the buyer to just roll with it. That's the whole point of DD. The error essentially wipes out the buffer I put into the price when submitting the offer.
I'm leaning towards asking the broker to split the difference and do a 5% adjustment to the valuation. Otherwise, shift more of the upfront payment to the seller note, or perhaps modify the seller note so that it is 'forgivable', contingent on business performance over the next 60 months -- to reduce some of the risk from my side while allowing the seller to earn back the full agreed-upon price,
What would you do?
from The University of Chicago in Chicago, IL, USA
Retrades should not be taken lightly, despite what you may read. Your likelihood really depends on the seller’s motives and how competitive the process was. If there were other bidders and the seller really cares about money (they all do, regardless of what sellers say), it’ll be hard to get anything.
I had 2 LOIs where the issues were worse than yours, both I asked for retrades, and both times the answer was “too bad, we can go elsewhere” and that was it. Actually, I think the first time they offered peanuts and said you can make it up shortfall elsewhere. But they had 4 offers, so I don’t blame them.
if you get them to split the difference or change consideration, I’d consider that a big win. Use common sense and ask how badly you want the deal.
from University of Southern California in Los Angeles, CA, USA