In most UK transactions a buyer can attempt to reduce their offer after heads of terms, because those heads are normally non-binding on price and expressly subject to due diligence. Whether the attempt succeeds is a commercial question rather than a legal one, and it turns on three things: whether the buyer has found something real, what the heads of terms actually say, and whether you still have a credible alternative. The legal position in any specific case depends on the transaction documents, and you should take your solicitor's advice on those.
Why buyers seek to renegotiate
Broadly, for two reasons, and they need to be told apart before you respond.
Genuine diligence findings
- Trading below forecast. Months that missed budget during the process, or a run rate that no longer supports the multiple.
- Customer loss or concentration risk. A significant customer lost, not renewing, or found to be on notice or out of contract.
- Earnings adjustments. Add-backs that do not survive scrutiny, or recurring costs presented as one-off, reducing the adjusted EBITDA the price was built on.
- Working capital. A normalised requirement materially higher than assumed when the price was set.
- Debt-like items. Unpaid tax, dilapidations, accrued liabilities, finance leases or deferred consideration discovered late.
- Legal and tax risks. An unassigned lease, an unresolved employment claim, missing contracts, unclear ownership of intellectual property, or a historic tax position that may need providing for.
Price chipping
The other pattern is tactical. An opening offer is pitched high to win exclusivity, then reduced late in the process once the seller has spent months, incurred fees and mentally moved on. The tells are familiar: the reduction arrives just before signing, the justification is vague or is drawn from matters disclosed months earlier, the figure is a round number rather than a calculated one, and it comes with time pressure. A party that has disengaged from the detail and simply asks for a discount is chipping, not diligencing.
The role of heads of terms and exclusivity
Heads of terms are where a seller's protection is built. The price basis should be stated precisely, including the EBITDA figure and period it is calculated on, the agreed treatment of cash and debt, and the working capital target with its method of calculation. The diligence scope and timetable should be defined. Where possible, the heads should record that price is expected to change only where diligence reveals something materially different from the information already provided.
Exclusivity is the other half. It is reasonable for a buyer to want it, and reasonable for a seller to limit it. Keep the period short with extension conditional on progress, require the buyer to confirm funding status, and consider a break arrangement covering your costs if they withdraw without a substantive reason. Every extra week of exclusivity transfers negotiating power to the buyer.
Maintaining competitive tension
The single most effective defence against a late reduction is the buyer's belief that you have somewhere else to go. Practically, that means running a process with more than one interested party, not dismissing underbidders abruptly when you grant exclusivity, keeping them politely informed, and avoiding statements that reveal you have committed emotionally or financially to this deal completing. A buyer who believes the underbidder is still reachable behaves very differently.
When to push back
- The point was disclosed earlier and is therefore already reflected in the price.
- The reduction is disproportionate to the issue: a one-off cost being capitalised into a multiple.
- The risk can be dealt with another way, through a specific indemnity, a retention or an adjustment at completion rather than a cut to the headline price.
- The justification is unevidenced, or the timing is plainly tactical.
The effective response is calm and specific: ask for the finding in writing with its financial working, answer it with evidence, and where an issue is real, offer a proportionate solution rather than accepting the buyer's arithmetic.
When renegotiation may be justified
Sometimes the buyer is right. If profits have genuinely fallen, if an add-back does not stand up, if a major customer has gone, or if a real liability has emerged, a buyer holding to the original price would be paying for something that no longer exists. Refusing to acknowledge that rarely ends well. The useful questions become how the gap is bridged rather than whether it exists: a cash reduction, a deferred element linked to recovery, an indemnity limited to the specific risk, or a retention released once the position is clear. Sellers who engage constructively at this point typically achieve far better outcomes than those who treat any movement as bad faith.
How to reduce the risk before it arises
Almost every successful chip relies on something the buyer discovered that the seller already knew or should have known. Vendor-side preparation, surfacing and resolving the issues before the buyer finds them, removes most of the ammunition. Preparing a business for sale covers that work, and the due diligence checklist sets out what buyers will ask for.
What to do next
If you are already in exclusivity and a reduction has been proposed, get the rationale in writing before responding, and take advice from your solicitor on what the documents actually commit you to. If you have not yet gone to market, the work that prevents this happens now. The sell-side process shows where each of these protections is put in place.
Common questions
Is an indicative offer binding?
Generally not. Heads of terms are usually expressed as subject to contract and subject to due diligence, with only certain clauses such as exclusivity, confidentiality and costs intended to bind. Whether any particular document binds either party depends on its wording and the surrounding facts, and that is a question for your solicitor.
Can I refuse to renegotiate?
Yes. A buyer cannot compel you to accept a lower price. The practical question is what your alternative is. If exclusivity has expired or other parties remain interested, refusing is straightforward. If you have been exclusive for four months and the underbidders have moved on, it is harder, which is precisely why exclusivity periods should be kept short.
How common is renegotiation?
Some adjustment between heads of terms and completion is common, because diligence is designed to test assumptions and often finds something. A wholesale reduction in the headline multiple is much less common where the business was properly prepared and the information provided was accurate from the outset.
What if trading dips during the process?
Be straightforward about it immediately, with an explanation and evidence. Buyers respond far worse to a decline they discover themselves than to one disclosed early with context. Where the dip is genuine and material, the realistic outcomes are a price adjustment, a deferred element linked to recovery, or a pause until performance stabilises.