There is a moment in almost every acquisition that first time founders never see coming. Deep into the process and just a week or two from closing, the buyer comes back with: "Hey, the team's been deep in diligence and overall we're really happy with what we're seeing. A couple of things came up that we need to work through with you. Nothing that changes how we feel about the business, but they do affect the model, so we'll need to revisit the structure to get this across the line."
In plain speak, the buyer wants a price adjustment. And no, they're not going to pay you more than initially agreed upon. The new price will be less.
It has a name in the M&A world: the retrade.
Morgan & Westfield, an M&A advisory firm, estimates that buyers try to renegotiate key terms before closing somewhere in the range of 20–30% of the time, but from anecdotal evidence in speaking to my friends, this feels like it happens more often than not.
Thankfully, this did not happen to us when we sold Tatango. I was ready for it, because nearly every founder friend who had been through an acquisition warned me about it. We also had both of the defenses I lay out below, and I think the buyer knew it, hence why they didn't attempt it.
There are two versions of retrades, legitimate and opportunistic.
Legitimate retrades
I want to be fair here, because sometimes the retrade is legitimate.
Mark Cuban has said that of his Shark Tank deals, 30-40% of the companies he was about to back turned out to be misrepresenting their numbers after due diligence. When a buyer finds something real and material that you did not disclose, a price adjustment is fair. That is not a retrade. That is diligence working.
Opportunistic retrades
During an acquisition, the due diligence is grueling on you and your team. The data requests never stop. The legal bills start to add up fast. The accounting bills start to add up right behind them.
And somewhere in that grind, a switch flips in your head. You stop being able to imagine undoing it. The thought of walking away, eating the legal and accounting spend, going back to your team to say "never mind," after all that work, or starting the whole process over with a brand new buyer feels unbearable.
That is the exact moment the retrade is brought up. A sophisticated buyer is not guessing about your fatigue. They are counting on it. The retrade is timed to land when you are too deep, too tired, and too committed to say no, like a week or two before closing.
You protest to the buyer, complain to your board, maybe even think about walking away from the deal, but you know, and the buyer knows that deep down you are already too far into this process, and you're going to accept the retrade. If only you had a defense against this.
Your best defenses
There are two things that can reduce the chance of a retrade being presented, and if it is, help you fight back against it. The first: be a viable, profitable company.
Think about what leverage actually is in this situation. It is your willingness to walk away when the buyer tries to retrade. And your willingness to walk away is only as strong as your alternative. If your alternative is "I go right back to running a healthy, profitable business that I enjoy," then a retrade is easy to reject, and the consequences are not that bad. You can look the buyer in the eye and mean it when you say no. In this scenario, a smart buyer may go so far as to not even bring up a retrade if doing so could cost them the deal. That's how much leverage this has.
Now flip it. You are a startup burning cash. The deal process has already chewed up three or four months of runway in legal and accounting fees, and you're getting close to zero in the bank. A retrade lands, and you have no real option but to take it, because the alternative to a lower valuation is no company at all. This is where the buyer has all the leverage, as they know there's very little chance of the seller walking away at this point.
The second defense is to always have other buyers lined up if the current deal falls through. This only works if you run a real process with an investment bank and get multiple bidders to the table. A word of caution, when you reject the other offers during the process, reject them gracefully. Be tactful. Leave the door open and the relationship intact. Because if your first-choice buyer tries to retrade you at the eleventh hour, those are the people you may need to call back and re-engage with. You don't want them to have bad feelings.
When we sold Tatango, we had both defenses ready if the buyer attempted to retrade, and I think because we had made both these defenses readily known, and they were legitimate, the buyer didn't attempt this with us.
The bottom line
Your deal may close exactly at the LOI terms. Plenty do. But the founders who get hurt by a retrade are almost always the ones who never saw it coming and had not planned for it. The more prepared you are for the retrade, the less chance it happens in the first place, and if it does happen, the less likely it will impact your deal value.
The retrade isn't bad luck. It's a move. And the founders who see it coming are the ones who don't pay for it.