What Does Re-trading Mean?
Re-trading is the practice of renegotiating the deal price of a company after the initial price and terms have been agreed to. This occurs when the buyer performs due diligence during negotiations and potential risks are uncovered during the process.
Divestopedia Explains Re-trading
Re-trading is a practice that is sometimes employed by private equity to gain exclusivity on a transaction by bidding high early in the auction process and winning entry into the second stage. Obviously, re-trading is looked upon negatively in the M&A world.
Prior to the execution of the letter of intent, the acquirer must perform due diligence on the target company in preparation for the deal transaction. The outcome of the due diligence process can reveal issues such as inadequate financial reporting and failure to provide full disclosure of material information. If the buyer does not receive an adequate response to their requests during the sale process, he/she can then ask to renegotiate the price and terms of the deal. A buyer may also request a re-trade in bad faith, which occurs when there is only one buyer with an offer in and he/she wants exclusivity on the deal in their terms. The seller can preempt this by waiting for the buyer to perform any financial and business analyses, then execute a detailed letter of intent so that issues are addressed beforehand.
While it is not uncommon for issues to arise during deal transactions, the seller must adequately prepare by identifying and mitigating any possible issues in order to have a successful transaction. Otherwise, the seller must be ready to walk away from a deal if the buyer's terms are not fair.