Is it normal for a seller to increase the purchase price post agreement?

August 23, 2021

by a searcher from University of Minnesota - Twin Cities Campus in Overland Park, KS, USA

Have people had a lot of experience with buyers meeting a seller's asking price only to have the seller increase the price again post agreement, but prior to diligence starting? Have dealt with this twice this year already and it's frustrating, but curious if it's just a normal part of the negotiation process or if I should consider just walking away as soon as the seller puts the increase in price on our deal although I had already agreed to their terms.

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Reply by an intermediary
from City University of New York (CUNY) System in Wesley Chapel, FL, USA

Under most situations, the price negotiated should not change dramatically pre-DD. That being said, businesses go through major changes sometimes during the "Dating Phase" and Buyers should be be prepared to make their offers based upon recurrent performance, even if its grown (which should benefit everyone). I recently had a deal where my client signed an LOI, but then got a notice from a major Pharma that they would be required to supply goods to them at 7X the clip they had in the best of times. This would eventually 2x to 3x the company's size over the next three years, without a known likelihood for a future reduction. In addition, new business was also acquired that would grow the business substantially, before closing, on its own merits. Irrespective of the outcome of my transaction, which did close, it would make sense for offers to be based on multiples of sustainable TTM EBITDA so both sides understand that the price may go up or down before close. If the Buyer doesn't like the uptick because continuous EBITDA is questionable, walk away since it is non-binding anyway, and then the Seller will find someone who likes the growth and pays for it at some level. Fixing a price or range, while seemingly the practice in many IOI/LOI's I receive, can ultimately lead to unexpected issues.

Reply by a searcher
from Babson College in Boston, MA, USA

Imagine how you'd feel if someone proposed marriage to you on a first date? Surprised, right? Imagine how they'd feel if you said 'Yes' right away!...much more surprised.

This one is really simple....if you agree to his/her asking price without any haggling the Seller is going to worry that the asking price was too low. Never do that. Offer a price that is just a little lower (not low enough to insult or blow the deal), and haggle a little bit, and don't fall on your sword over it....you can "concede" to his/her original price. This way, if you do meet the original asking price, the Seller will feel he or she really knew that his/her business was worth that all along, and due to their excellent negotiating skill, they got the highest price possible.

Nothing freaks a Seller out like having his/her asking price met (if its reasonable).

This is precisely why so many have unreasonable initial prices (this is not what I'm referring to). If they find someone crazy enough to pay that price....awesome for them, but at least they are secure in knowing they didn't ask for to little.

Always, always haggle at least a little. Don't do that to your seller. Always let them feel they fought enough for a better price....they'll be more likely to see the deal through.

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