ARRRGGGHHH! The Buyer is Re-Trading

Will the business deal go through? yes or no

ARRRGGGHHH! The Buyer is Re-Trading

When you’re selling your business there are many twists and turns on the way to closing. One of the more frustrating scenarios occurs when the buyer decides to Re-Trade. This usually happens once a Letter of Intent (LOI) has been signed and the buyer finds something during their due diligence period that they had not anticipated. They then begin to renegotiate the price, or Re-Trade.

Often, there always seems to be some form of additional negotiating when moving from the LOI to the purchase agreement. As the seller, here is what you can do to minimize or eliminate Re-Trading:

Offer a Sales Process

You will want to offer a sales process that includes: sending out the Blind Profile (BP) to multiple buyers, following up with a Confidential Information Memorandum (CIM), having buyer/seller meetings, requesting Indications of Interest (IOI) and then receiving LOI’s from multiple buyers. This initial sales process can take 2-3 months. If done effectively you should have at least 3-5 LOI’s from which to choose. The sales process is important because if you encounter problems with the buyer who signed an LOI, you will have a bench of buyers who submitted LOIs but were not selected. These buyers are eagerly awaiting your deal to blow up.  The buyer you do select will know you have other interested buyers waiting and may think twice about re-negotiating the deal. The odds of a buyer Re-Trading is highest when the seller decides to sell to only one buyer and doesn’t entertain multiple offers, and the seller is at the buyer’s mercy.

Make Sure Your CIM is Accurate

Once the LOI has been signed, the buyer now needs to confirm that everything you’ve outlined in the CIM is accurate as they begin due diligence. Take the time to verify the information in the CIM is true and uninflated. Should the buyer find inconsistencies within the CIM, not only will they want to Re-Trade, but there will be a lost level of trust.

Keep the Pedal to the Metal

This is so important! During the sales process, make sure your financials are as strong as ever. You want to show a growing company to the buyer and their investors and/or lenders. Every P&L should be better than the last one. Declining financials will keep you up at night and invite Re-Trading. Don’t check out before you get the check in hand.

 

Some buyers will have good reason to Re-Trade. Others may just be trying to get a better price without any strong evidence to back up their claims. Here are steps you can take should a buyer Re-Trade:

Hold Your Ground

Thoroughly investigate the Re-Trade claim and if you feel you have strong evidence that supports your position, don’t back down.  Remember, you and hopefully your buyer, both know you have a bench of buyers ready to jump in. Oftentimes, if the buyer is serious about buying your business, they will accept your rationale if in fact, your Re-Trade response makes sense.

Meet, Meet and Meet Again

I cannot emphasize this enough. Whenever you and your buyer have a dispute, get together in person right away. Have many meetings if necessary.  If both sides have legitimate arguments, stay at the table and work it out. The key is that both sides want to get the deal done and that they respect and trust each other. When that happens the transaction normally finds a way to close.

Walk

This might be the best course of action if you’ve realized the buyer has a weak Re-Trade claim and you’ve lost faith in doing business with them. Yes, it takes work to terminate an LOI and go back on the market. Yet in the long run this might be the wise move.

 

It is said a deal dies three times before it closes, and Re-Trading often is the cause of many transaction deaths. Once an LOI is signed the odds of the deal actually closing is about 50%. The day you decide to sell your business, enlist an M&A advisor/broker to design and manage your sales process. Also, make sure you provide accurate information to your buyers and keep your business running at full speed. By doing this, the odds will be in your favor that the buyer will not Re-Trade and your business will sell.