Reasons to Renegotiate an M&A Deal - dummies

Reasons to Renegotiate an M&A Deal

By Bill Snow

Company valuation can change during the M&A process. In fact, that occurrence even has a name: renegotiation. Or, as disappointed Sellers may call it, the dreaded renegotiation.

Theoretically, when Buyer and Seller negotiate a valuation, both sides want to see the deal close with that valuation. In practice, however, one side or the other may try to change the sale price before the closing.

If Buyer is trying to change the valuation, you can bet that he’s trying to lower the valuation.

Buyer may have a case to ask for a lower valuation if the company has experienced some sort of material changes, such as the following:

  • Decline in profits

  • Loss of major customers

  • Loss of key executives

  • Lawsuits

  • Change in regulations

  • Change (downturn) in the economy

However, if Buyer doesn’t have a solid reason for asking for a lower price, that Buyer may be exhibiting a little bit of gamesmanship and a lot of negotiating in bad faith.

Similarly, if the business improves (especially profit-wise), Seller may feel that renegotiating for a higher valuation is warranted. This proposition is tricky. Focus on getting the deal done. During the time Seller spends convincing Buyer to pay more, the business may take a step backward, reducing profits and thus causing Buyer to ask for a lower valuation.