Lowered Price Post LOI

by an member from The Citadel - The Citadel School of Business

1 year ago

Interested to get a view on how sellers have responded to a lower price vs. what was offered in the LOI. I've rarely seen in industrial M&A the offer price increased in R2 vs. R1 (usually the price is lowered during diligence). Any one able share experiences where they provided justification and the seller agreed and ultimately lowered the price?

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intermediary from University of Wisconsin-Eau Claire - College of Business

It is quite common. We try to prepare out sell side client ahead of this, ie don't be surprise if, after a Q of E, they will try to negotiate a modified deal. It really all depends on what the basis for the deal is and whether or not that basis was proven to not be accurate upon post LOI due diligence. If that is the case, you can't blame the buyer, but if that is not the case, it is just a cramp down and you should stand firm for your client or terminate. There is no right or wrong in such situations, so we just use that acid test to make a decision.

11 months ago | like reply | 0 likes

professional from Villanova University

If your QoE can prove lower EBITDA than that presented by Seller, then a PP reduction equal to the EBITDA shortfall multiple by the implied multiple in your LOI is an intellectually honest approach...although Seller may not want to proceed at that point. That said, given strong arguments proving lower EBITDA, I have seen purchase price reductions or altogether new LOIs/restructuring the deal in some sort. -Dave

1 year ago | like reply | 0 likes

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