I'm working on an LOI right now for a company that did not keep great books and has a stubborn seller. The seller's projecting to me the attitude that he doesn't mind waiting to sell the business, and would be happy to run it for another year or so to get what he thinks it is worth--this is probably partially true and partially a negotiation tactic.

My main concern is his books/returns are terrible. There is a chance that after an accounting review and due diligence his SDE & EBITDA are materially less than he thinks they are, and we will have to lower the selling price. (The selling price in the LOI will be based on a multiple of either SDE or EBITDA.)

My concern is that at that point, I will have invested a good amount of money into due diligence and he may get cold feet and try and back out if the final price is "not what he thinks his business is worth".

Any ideas on how to handle this? Have him put earnest money down to cover DD, should he back out? Set a target range in the LOI? Ask the broker to pay for accounting DD and he can keep it if the deal falls apart?

Thanks, any advice is very appreciated!