Search Funders Offering Full Market Valuations and Then Retrading?

February 19, 2025

by a searcher from Brigham Young University in Salt Lake City, UT, USA

Hi Folks,

I'm a VP at a LMM sell-side investment bank. I've noticed that in several of my recent processes search funds and independent sponsor types seem to be submitting bids on my deals at a "full" valuation and are typically all cash deals--only before attempting to retrade lower at the LOI stage or within due diligence. Is this a new concerted search fund strategy to try and get in the door with a rich valuation? Or is this simply a coincidence?

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Reply by a professional
from University of Toronto in Toronto, ON, Canada

^redacted‌, it's not surprising to hear of this 're-trading' or 'down-trading' practice in the ETA community. There is a steadily increasing volume of comments on this platform where searchers either boast about having done this themselves or recommend that other searchers do it. In this context, it's simply a negotiating tactic to get access to a deal and then reprice it. However, there are some situations where DD/QOE results are genuinely negative and in those circumstances it's perfectly appropriate to renegotiate the price (my LOIs always contain a clause that provides for price renegotiation - it's a better solution than walking away from an otherwise attractive deal).

Reply by an intermediary
from Texas A&M University in Dallas, TX, USA

We've been able to avoid this up to this point, but we have heard from others to be on the lookout for it. When we are talking to searchers who are looking at our deals, we try to get to know them, ask them how their search is going, learn about other deals that they have pursued, etc. We do this out of curiosity more than anything (because we enjoy learning about what people are working on), but it does help to understand how serious the offer or potential offer is going to be. If they've backed out of several deals, we'll try to find out why and if those were legitimate reasons.

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