Definition - What does Re-trade mean?
Re-trade is the renegotiation that takes place between the buyer and the seller after the terms have been agreed to by both parties. This re-trade is initiated by the buyer and can be used to seek justification for an adjustment in the buying process. Sometimes, however, the buyer may also try to take advantage of the leverage gained in this transaction.
Divestopedia explains Re-trade
Re-trade is a tactic sometimes used by private equity where the PE firm may want to lower the price of the deal, even after initially agreeing to a higher price. Many studies show that a majority of business sales occur on terms that are less favorable to the seller because it was renegotiated by the buyer much later during the sale process. This re-trade is done at the eleventh hour and as a surprise because the seller has fewer options at this time and, as such, the chances for the seller to agree to the re-trade is high. This process leaves sellers in a bad situation because they have to either agree to the lower terms or they have to look for an alternate buyer. Both options are expensive, but with re-trade there is a greater guarantee because the buyer is known. This is why many sellers opt to compromise on the return aspect and agree to the re-trade terms proposed by the buyer.
Re-trade occurs because the buyer may exercise due diligence when they identify any flaw in the seller's business. To avoid such a situation, sellers should be prepared to answer all questions and provide the necessary documentation to show that the company's fundamentals are strong. Secondly, the Letter of Intent (LOI) should be drafted tightly. Any re-trade requests should entail a fine for the buyer, unless the claims are most serious. Such measures will prevent the seller from getting into a disadvantageous position when the buyer decides to reduce the offer price. In some cases, it may even be best for the seller to walk away from the deal entirely.
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