Podcast Summary: The Path to Exit

Episode 30 | How to Help Prevent a Retrade When Selling Your Business

Date: July 15, 2025
Host: Mike Lyon (Vista Point Advisors)
Guest: Jeff Koons (Vista Point Advisors)

Episode Overview

This episode of The Path to Exit dives deep into the concept of a "retrade" during the process of selling a software or internet business—where a buyer tries to renegotiate deal terms (usually lowering the price) after agreement but before closing. Host Mike Lyon and guest Jeff Koons break down the different types of retrades, why they happen, and how founders can proactively defend against them as they prepare for M&A transactions.

Key Discussion Points & Insights

1. What is a Retrade? [01:01–01:24]

• A retrade is when a buyer, after agreeing on economic and legal deal terms, tries to change these terms (almost always negatively for the seller) before closing.
• Sometimes called a “price chip” or “strategic repricing.”
• Retrades can be either “legitimate” (arising from genuine diligence findings) or more opportunistic (exploitative).

“You have agreed on the key terms of a deal... and then prior to closing the deal, the buyer changes the economic or legal terms of the deal. And it’s always in a negative way.”
— Jeff Koons [01:06]

2. Types of Retrades

a) Strategic Retrade [02:02–04:10]

• Occur when buyers intend from the outset to renegotiate (often a PE firm strategy).
• Clues include pushy requests for long exclusivity and sudden, unsubstantiated hikes in valuation.
• Founders are advised to be wary of buyers seeking long exclusivity periods and aggressive initial offers.

“They’re going to promise something and... two days before the deal's supposed to close, they're going to change that and say... it's 30% less on the valuation side, or we're going to move this cash up front to earn out...”
— Jeff Koons [02:02]

b) Diligence/Process Retrade

• Larger category involving things uncovered or argued during due diligence.
• Not always the seller’s fault, but founders have more ability to prevent these.

3. Core Mitigation: Limit Exclusivity [04:10–04:57]

• Keeping exclusivity periods limited or non-existent protects seller leverage.
• More potential buyers mean a seller can push back on retrades.

“The best protection against getting retraded is to have a limited or no exclusivity period in your deal.”
— Jeff Koons [04:10]

4. Common Sources of Retrade and How to Defend Against Them

a) Performance & Projections [05:12–07:57]

• If the business underperforms or misses projections during diligence, buyers may seek to renegotiate.
• Founders should be conservative in published projections (prefer annual/quarterly over monthly).
• It’s critical to avoid “asymmetric risks” in projections; better to under-promise and over-deliver.

“There’s a tremendous amount of downside in terms of missing your projection... Always meet or exceed those numbers.”
— Mike Lyon [05:43]

b) Accounting Diligence [07:57–12:05]

• Buyers will hire reputable firms (KPMG, Deloitte) for accounting diligence, searching for inconsistencies.
• Sellers should ensure clean, reconcilable books and consider a sell-side "quality of earnings" (QoE) analysis.
• Regular comparison of financial reports and KPIs is a simple but vital sanity check.

“This one, in our mind, you just got to be buttoned up and prepped up front, and then this one is totally in control of the seller.”
— Jeff Koons [10:13]

c) Framing Retrade [12:05–14:04]

• Occurs when founders present the business in an overly optimistic way (e.g., cherry-picked retention data).
• Be aggressive but truthful; know where you can push the envelope while still surviving diligence.
• Founders should use standard, defensible metrics but be prepared for scrutiny.

d) Market Retrade [14:04–16:46]

• Buyers cite third-party market studies that call into question your stated TAM.
• Particularly risky if buyers unfamiliar with the space.
• Sellers must ensure buyers have done their homework before exclusivity; weed out “uninformed” buyers early.

“The market hasn’t changed from the time you got the term sheet... So two months ago they thought the market was fine and justified this valuation. Now all of a sudden it’s not.”
— Mike Lyon [15:30]

e) Technology Diligence (Tech Debt) [16:46–19:01]

• Buyers might claim expensive upgrades are needed to justify price chips.
• Sellers can defend if the current tech stack is reliable, secure, and serving customers well.
• Front-loading tech diligence can minimize surprises.

f) Legal Diligence [19:01–21:21]

• Last-minute legal findings (contract terms, liabilities) can lead to sudden demands (e.g., bigger escrows).
• Hire good M&A counsel to review all contracts and pre-empt issues before diligence begins.
• Request a draft of the purchase agreement before granting exclusivity.

g) Sales Tax Issues [21:21–25:07]

• Many software companies are not in full compliance with state/local SaaS sales tax laws, leading to surprise liabilities.
• Buyers often propose a conservative estimate (including penalties) that reduces purchase price.
• Sellers should have proactive tax analysis: calculate true liability and set up escrow not outright price reduction.

“If you haven’t done the prep work to argue that number, you are in trouble because it’s going to be really hard for you to combat that.”
— Jeff Koons [22:57]

• Negotiate the definitions of “debt” and “working capital” in the deal to prevent buyers from sneaking in last-minute adjustments.

Notable Quotes & Memorable Moments

• On the downside of missing projections:
  “You just don't want to take asymmetric risks... There's a tremendous amount of downside in terms of missing your projection.”
  – Mike Lyon [05:43]

• On phantom preparedness:
  “Whenever we hear from someone, we're super buttoned up. It's like an 80% correlation, small to major disaster on this area.”
  – Mike Lyon [11:21]

• On the frustration with market retrades:
  “The market hasn’t changed... So two months ago they thought the market was fine... Now all of a sudden it’s not.”
  – Mike Lyon [15:30]

• On sales tax retrades:
  “The good news is there’s just a good way to avoid things like this... If you haven’t been doing that, that’s fine, [but] have a tax accountant who can come and say, we think the actual exposure here is $200,000 and that’s for everything.”
  – Jeff Koons [23:26]

Timestamps for Key Segments

• What is a Retrade? – [01:01]
• Types of Retrade & Strategic Retrade – [02:02]
• Importance of Limited Exclusivity – [04:10]
• Performance & Projections Retrade – [05:12]
• Accounting/Audit Diligence – [07:57]
• Framing and Retention Rate Retrade – [12:05]
• Market Size Retrade – [14:04]
• Technology Diligence Retrade – [16:46]
• Legal Issues & Term Sheet Translation – [19:10]
• Sales Tax as Debt/Working Capital Retrade – [21:21]
• Negotiating Debt Definition – [25:07]

Conclusion

Mike and Jeff provide a frank, inside look at where retrades originate and—most importantly—how founders can proactively protect deal value. Their advice emphasizes up-front preparation, cautious exclusivity, defensible data, and experienced advisory support as the best shields against retrade attempts.

For more advice or details, visit vistapointadvisors.com/for-founders.