Retrades: Why Buyers Cut the Price After the LOI

You sign a letter of intent. You stop talking to other buyers. A few weeks into diligence, the buyer calls with a new, lower number.

That is a retrade. It is one of the most frustrating parts of selling a practice. It is also one of the most preventable.

What a retrade is

A retrade is when a buyer tries to change the deal terms after the LOI is signed. Most often, that means lowering the price. Sometimes it means shifting more of the price into a seller note, an earnout or a larger holdback.

Retrades happen after the LOI because that is when your leverage drops. Most LOIs include an exclusivity period. During that time, you cannot negotiate with other buyers. The buyer knows that walking away means starting over for you.

Why buyers retrade

Some retrades are tactical. A buyer may offer a high price to win exclusivity, then plan to bring it down later. Those buyers exist, and a good process screens for them.

But most retrades start with something the buyer finds in diligence. Diligence is the buyer's detailed review of your practice. When what they find does not match what they expected, they adjust the price.

Common diligence surprises in PT practices include:

• Financial statements that do not tie to bank deposits or tax returns
• Owner expenses mixed into the business with no clear record
• Collections lower than billed charges suggested
• Billing or documentation issues that could trigger payer recoupment
• A key therapist planning to leave, or no written agreements with staff
• A lease that expires soon or cannot be assigned without landlord approval
• Revenue concentrated in one referral source or one payer

None of these automatically kills a deal. But each one gives the buyer a reason to ask for more protection or a lower price.

A retrade rarely sounds aggressive. It usually sounds reasonable. The buyer explains that its valuation assumed certain numbers, and diligence showed different ones.

Say a buyer valued your clinic at 4.0 times EBITDA of $400,000, for a price of $1,600,000. In diligence, the buyer adjusts EBITDA down to $350,000 after removing expenses it does not accept. At the same multiple, the price becomes $1,400,000. That is a $200,000 cut from one adjustment.

The math is simple. Your defense is having the numbers right before the buyer ever looks.

Preparation is the best defense

Most retrades can be prevented by finding problems before a buyer does. That means reviewing your practice the way a buyer would, months before you go to market.

Start with your financials. Your profit and loss statements should tie to your bank statements and tax returns. Owner add-backs should be documented and defensible. If you run personal expenses through the business, record them clearly.

Then look at billing and compliance. Review your documentation, coding patterns and any payer correspondence. If there are problems, fix them and be ready to explain them.

Finally, look at people and contracts. Make sure key therapists have written agreements. Check your lease term and assignment terms. Know which payer contracts can transfer and how.

Build the data room before the LOI

A data room is a secure online folder that holds everything a buyer will ask for. Most sellers build it after signing the LOI, under pressure. We recommend building it before you go to market.

A ready data room does three things. It speeds up diligence, which shortens the time the buyer has to find reasons to renegotiate. It shows the buyer you are organized and transparent. And it forces you to find your own problems first.

When a problem is disclosed up front, it becomes part of the price buyers offer. When it is discovered in diligence, it becomes a reason to cut the price.

Disclose early, on your terms

If you know about an issue, put it on the table before the LOI. Explain it, show what you did about it, and let buyers price it in. That keeps it from becoming a surprise later.

Buyers can handle known problems. What they punish is learning about problems late.

Your next step

Pull your last three years of profit and loss statements, tax returns and bank statements. Check whether they tie. If they do not, that gap is the first thing to fix, and the first place a buyer would look.