The LOI is signed. The buyer seemed serious. The process was moving forward. Then something changed — the offer came back lower, the deal structure shifted, or the buyer walked away entirely. A retraded LOI is one of the most frustrating and expensive experiences in a business sale. Understanding why LOIs get retraded — and what prevents it — is the knowledge that protects the multiple you negotiated. Learn the full framework in Exit Ratio 360™.
What does it mean when an LOI gets retraded?
A retrade occurs when a buyer uses information discovered during due diligence to renegotiate the deal terms after the LOI has been signed. The LOI is not fully binding on price — the exclusivity clause is binding but the economic terms are subject to change based on what diligence reveals. See also: LOI Smackdown.
What does it mean when an LOI gets retraded?
A retrade occurs when a buyer uses information discovered during due diligence to renegotiate deal terms after the LOI has been signed — reducing the headline price, changing the structure to include larger earn outs or hold backs, or inserting new conditions that lower at-close proceeds. The LOI is not fully binding on price — only the exclusivity clause is binding.
What causes most LOI retrades?
The four most common retrade triggers are financial statement inaccuracies that contradict the seller’s representations, undisclosed liabilities that surface during legal or financial diligence, operational dependencies the buyer did not fully understand at the LOI stage, and working capital adjustments where the buyer and seller defined normalized working capital differently. See also: Quality of Earnings.
What causes most LOI retrades?
The four most common retrade triggers are financial statement inaccuracies, undisclosed liabilities surfacing in diligence, operational dependencies the buyer did not fully understand, and working capital adjustments where the parties defined normalized working capital differently. Each represents a gap between what the seller presented before signing and what the buyer found after.
How does the exclusivity clause enable LOI retrades?
The exclusivity clause — typically 60 to 90 days — removes the seller’s ability to shop the deal while the primary buyer conducts diligence. Once exclusivity is in place, the seller’s negotiating leverage decreases significantly. The buyer knows the seller cannot walk away and re-engage the market quickly without starting the entire sale process over. This leverage asymmetry is what sophisticated buyers exploit when they retrade after exclusivity is signed.
How does the exclusivity clause enable LOI retrades?
Exclusivity removes the seller’s ability to shop the deal while the buyer conducts diligence. The seller cannot quickly re-engage the market without starting over and signaling to the market the deal fell apart. This leverage asymmetry is what sophisticated buyers exploit when they retrade after exclusivity is signed.
How do you prevent an LOI retrade before it happens?
Prevention comes from three actions taken before the LOI is signed. First — commission a sell-side quality of earnings report and resolve every finding before going to market. Second — build a data room before you receive the first LOI. Third — disclose known issues proactively in the LOI negotiation rather than letting the buyer find them. A disclosed issue is a negotiated issue. An undisclosed issue found in diligence is a retrade trigger. See also: Titan Thesis.
What is the difference between a retrade and a legitimate deal adjustment?
A legitimate adjustment occurs when diligence reveals a material undisclosed fact that changes the risk profile. A bad-faith retrade uses minor findings as pretexts to renegotiate terms unrelated to the findings. Legitimate adjustments warrant negotiation on the specific finding. Bad-faith retrades warrant a hard counter-position backed by documentation refuting the stated rationale.
How do you prevent an LOI retrade before it happens?
Commission a sell-side quality of earnings report and resolve every finding before going to market. Build a data room before receiving the first LOI. Disclose known issues proactively in the LOI negotiation rather than letting buyers find them. A disclosed issue is a negotiated issue. An undisclosed issue found in diligence is a retrade trigger and an erosion of buyer confidence.
What is the strongest protection against a retrade?
The strongest protection is a Titan Thesis — the pre-built documentation that supports every representation the seller makes in the LOI and purchase agreement. When the buyer’s Q of E firm reviews your financials and finds them consistent with your representations, the buyer has no credible basis for a retrade. See also: Barefoot Test.
What is the strongest protection against a retrade?
The strongest protection is a Titan Thesis — the pre-built documentation supporting every representation the seller makes. When the buyer’s Q of E firm finds financials consistent with representations, legal finds clean contracts, and management interviews confirm team independence — the buyer has no credible basis for a retrade. Preparation that eliminates every retrade trigger means negotiating from evidence rather than defense.
How do you respond to a retrade after the LOI is signed?
Respond with evidence, not emotion. Ask the buyer to specify exactly what diligence finding supports the requested adjustment and what the financial justification is for the proposed change. If the finding is legitimate, negotiate on the specific item rather than accepting a broad price reduction. If not grounded in material evidence, counter with documentation that refutes it and hold your position.
Can you walk away from a retrade?
Yes — and sometimes walking away is the right response. If the retrade is not grounded in material diligence findings, walking away signals you have alternatives and will not accept the leverage play. This works best early in the retrade conversation before you have made significant concessions. The seller who walks away early loses less than one who spends three more months in a deteriorating negotiation.
How do you respond to a retrade after the LOI is signed?
Respond with evidence not emotion. Ask the buyer to specify exactly what diligence finding supports the requested adjustment and its financial justification. If legitimate negotiate on the specific item. If not grounded in material evidence counter with documentation refuting it and hold your position. The seller with documented evidence is far harder to retrade than the seller responding with urgency to close.
How does having multiple bidders protect against retrades?
Multiple bidders change the leverage dynamic fundamentally. When the buyer knows three other qualified parties participated, they understand that an egregious retrade demand results in the seller calling another bidder within 24 hours. Running a competitive process with multiple simultaneous LOIs is the most effective structural protection against retrades available to mid-market sellers. See also: 35 Questions to Ask an M&A Advisor.
What is a working capital peg and why does it cause retrades?
The working capital peg is the agreed amount of net working capital the seller must leave in the business at close. If actual working capital falls below the peg, the seller contributes cash reducing net proceeds. Working capital disputes of $300,000 to $500,000 at close of a $10M deal are common and preventable with a precisely defined basket negotiated before exclusivity.
Related: LOI Smackdown | Titan Thesis | Quality of Earnings | Exit Ratio 360™ on Amazon
About Scott Sylvan Bell
Scott Sylvan Bell is a mid-market exit strategy consultant and the creator of the Exit Ratio 360™. His book is available on Amazon.