A retrade three days before the closing date

The situation

A family-owned distribution business signed a letter of intent with an independent sponsor at a firm headline price, before the sponsor’s quality-of-earnings review had been completed — a sequencing choice the seller’s advisor had cautioned against but the seller wanted, preferring the certainty of a number early over a formula that might move.

Diligence proceeded over the following six weeks. The quality-of-earnings report flagged customer concentration — a meaningful share of revenue running through two accounts — in its first draft, circulated to both sides’ advisors. Nobody raised it as a pricing issue at the time. The deal continued toward a scheduled closing date on the original terms.

The problem

Three business days before closing, the buyer’s counsel sent a revised term sheet citing customer concentration risk and proposing a purchase price reduction of roughly 12%, with financing and closing logistics already committed on the seller’s side and little practical room to walk away without real cost.

Nothing about the concentration issue was new. It had been in the quality-of-earnings draft for weeks. What had changed was timing: with three days to a scheduled close, the seller had already incurred advisor fees, notified staff, and structured a transition around the original date — exactly the leverage a retrade three days out is designed to exploit.

The numbers

A roughly 12% proposed reduction against a mid seven-figure purchase price, raised three business days before a closing date that had been fixed on the calendar for six weeks — timing chosen, on any fair reading, for its pressure rather than for any new information that had just come to light.

The rule that decided it

The seller’s counsel went back to what the LOI actually said, and what it did not. “Most LOIs are non-binding on the core commercial terms — meaning neither party is legally required to complete the deal on those terms,” which cuts both ways: the seller could not force the buyer to close at the original price, but the buyer likewise had no contractual right to insist on the original price being the only number the seller had to consider elsewhere. The same guidance is explicit about why this happens: “a firm price agreed before any due diligence leads to either a blown-up deal or a buyer who closes their eyes and hopes for the best” — and this was the first outcome, arriving late.

The binding term in the LOI was exclusivity, not price, and it was the term that actually constrained the seller’s options during the six-week diligence window. With the exclusivity period nearly expired at the point of the retrade, the seller’s real leverage was refusing to extend it on the buyer’s terms: counsel informed the buyer that exclusivity would lapse on its stated date regardless of whether a revised deal was reached, and that the seller would be free to speak with other parties from that date forward.

Facing a genuine prospect of losing exclusivity rather than a seller with no alternative, the buyer narrowed its ask to roughly a third of the original reduction, tied specifically to a holdback against the two concentrated customer accounts rather than a permanent price cut, and the deal closed on the extended date at the revised structure.

The tell

The signal worth watching for is not the size of the requested reduction; it is the timing. A genuinely new issue — one nobody on either side had actually seen before — can surface at any point in a deal, including close to closing. An issue that has been sitting in a circulated diligence report for weeks, raised for the first time only once the seller has the most to lose from walking away, is not new information changing the price; it is old information being used at the moment it carries the most leverage. The fix is the same either way — price the actual risk on its merits — but knowing which one you are dealing with changes how hard to push back, and how much to trust the next number the same buyer proposes.

Related reading

The glossary covers the underlying document at letter of intent (LOI). A related failure — exclusivity granted with no deadline pressure of its own — runs through exclusivity granted for six months without milestones.

Takeaways

• • A non-binding price term in an LOI protects both sides equally — a seller with no other options still cannot enforce it against a buyer who wants to retrade.
• • A firm price agreed before diligence is complete invites exactly this outcome; a formula or range tied to confirmatory diligence removes the leverage a late retrade depends on.
• • The binding exclusivity clause, not the non-binding price term, is usually the seller’s real point of leverage in the closing window.
• • A retrade timed for maximum pressure is a signal in itself — a genuinely new issue does not wait until three days before closing to surface.

Sources

• • Treadstone Law — Letter of intent (LOI) for buying or selling a business (Ontario) — source of both quoted lines: “Most LOIs are non-binding on the core commercial terms — meaning neither party is legally required to complete the deal on those terms,” and “A firm price agreed before any due diligence leads to either a blown-up deal or a buyer who closes their eyes and hopes for the best.” It also lists exclusivity, confidentiality, costs and governing law as the provisions that are almost always binding.
• • Treadstone Law — Is an LOI price enforceable if it says “subject to due diligence”? — directly on the retrade question: “Either side can generally revisit price after diligence without breaching the LOI itself,” and a “subject to due diligence” qualifier “doesn’t create an obligation to close at the stated price, or any adjusted figure.” This is the authority for the file’s central claim that the buyer was entitled to ask, and the seller was entitled to refuse.
• • Treadstone Law — Exclusivity / no-shop clause in an Ontario business sale LOI — why exclusivity was the operative term: unlike price or structure, “exclusivity provisions are typically drafted to be enforceable immediately.” The page does not address retrades or milestones.
• • No statute governs a retrade. Which parts of an LOI bind is a question of what the document says, not of any Act; there is no Canadian statutory duty to negotiate in good faith toward a definitive agreement, and no statutory remedy for a late price reduction. The seller’s leverage here was the expiry of a contract term, not a legal entitlement.