Deciding whether to ask for a price reduction or change to LOI terms

April 05, 2025

by a searcher from University of Pennsylvania - The Wharton School in Sacramento, CA, USA

Hi all,

We're under LOI and wrapping up due diligence. We are impressed with the business and everything has checked out great. Except for one thing -- the broker made an honest mistake and double-counted an addback that was already included in another expense line. We uncovered this while diligencing the payroll documents. So, SDE was overstated by 10% in the marketing materials.

Do you renegotiate the LOI price here? I really don't want to be 'that' buyer. Especially when the seller has been very honest and on point with all information -- just that her broker added things up incorrectly. At the same time, you can't use bloated numbers in your marketing and expect the buyer to just roll with it. That's the whole point of DD. The error essentially wipes out the buffer I put into the price when submitting the offer.

I'm leaning towards asking the broker to split the difference and do a 5% adjustment to the valuation. Otherwise, shift more of the upfront payment to the seller note, or perhaps modify the seller note so that it is 'forgivable', contingent on business performance over the next 60 months -- to reduce some of the risk from my side while allowing the seller to earn back the full agreed-upon price,

What would you do?

Reply by an intermediary
in Campbell, CA, USA

Thank you for being cognizant of not wanting to be "that kind of buyer," but in this case, the broker made an obvious mistake, and the price should be reduced accordingly. You shouldn't pay for his mistake. [And for the record, to me, "that kind of buyer" is the one who uses their exclusivity to clear out other buyers in order to use that advantage (unethically) to play hardball on the price or any other ridiculous ask in the conditions of the LOI.]

Reply by a searcher
from Harvard University in Washington, DC, USA

What would've happened if Adj EBITDA was discovered to be 10% higher in DD - maybe an upward price adjustment? At some point, deals need to have a variance collar around them for DD (and for pre-close final financial reports) where no changes are made. Interesting idea to induce the broker to cover some but probably not realistic. Good luck!

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