Post LOI Purchase Price Negotiations

July 14, 2022

by a searcher from Tulane University - A. B. Freeman School of Business in Austin, TX, USA

During due diligence my partner and I have noticed several variances with some of the figures provided to us Pre-LOI, A $1MM in ARR was presented to us but it is actually closer to $850k and some customer concentration concerns with one client making up a very large percentage of revenue that was not previously noted.

We were curious as to how standard it is to renegotiate the purchase price prior to the Asset Purchase Agreement and if anyone had experience and best practices with dealing with similar type issues.

Reply by a searcher
from Emory University in Atlanta, GA, USA

It is very common, if the info you got post LOI was not presented prior to it, then it's quite normal and even expected that you would negotiate. You need to communicate with the business owner along the way as you uncover these and slowly get them on board, instead of telling them at the end of the process that you will be decreasing pp by $X millions.

Reply by an intermediary
from Harvard University in Denver, CO, USA

It's certainly reasonable to renegotiate, as mentioned above. I'd suggest keeping an eye on key metrics, like ARR, throughout the diligence process. It's not uncommon for things to change throughout, depending on how long that process takes, and can make the deal less attractive, or more.

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