We signed a letter of intent three weeks ago with a strategic buyer, went through their diligence checklist, and were told we were clear to close this Friday. Yesterday their attorney sent over a revised purchase agreement with two new conditions: a six-week transition consulting period from me at no cost, and a last-minute financing contingency tied to their bank. Neither was in the LOI. We have payroll this month and I had already started informing key staff. What is the standard move here? I do not want to blow up the deal, but I also do not want to keep letting them move the goalposts.
Closing Conditions
What to do if a buyer tries to add new closing conditions late in the game
Adding a financing contingency at this this stage is a red flag. That means their funding is not actually locked up. I would want pr oof the bank is fully approved before signing anything. The free consulting is a separate problem, that is a real cost you are handing over. Price both conditions and push back in writing.
How much leverage do you have? If there are other buyers or you can walk, tell them the LOI is the deal and new conditions require a price adjustment. If you cannot walk, you are in a much weaker spot. What does your M&A attorney say?
The consulting piece is the part I would not concede for free. Six weeks is a lot. Either cap it at a couple of hours a week or get compensated. Buyers do this because sellers are afraid to say no. You can say no to part of it.
My attorne says the LOI is not binding on these points, which I knew, but he thinks the financing contingency is the real problem. We have one other party that toured the plant but never made an offer, so leverage is thin. He suggested countering with a short consulting window and asking for a deposit to be released ibto escrow to compensate for the delay.
A deposit going hard on signing is the right ask. If they are serious, they will put money at risk. If they balk at that, you have your answer about how much the financing contingency is worth. Do not let them drag you another month on a maybe.
One other party that never made an offer is not leverage, it is a story. On the consulting, ask for a defined scope. An open-ended Six weeks can turn into twelve. Put a cap on hours and a termination date in the document.
Be careful about how you respond. Everything they sent yesterday is now part of the negotiating record. If you accept the financing contingency without a deposit or deadline, you have basically agreed to their bank having a veto over your closing date. I would send a redline that accepts the consulting in a limited form and rejects the financing contingency unless they put up a break fee.
This happened to us in a smaller deal. The buyer's bank kept asking for more documents and we lost six weeks. In hindsight the warning sign was that they added the financing condition after telling us they were a cash buyer. Find out who the lender is and how far along the approval is before you agree to anything.
That is the part that bohers me most. They presented themselves as an all-cash strategic. The bank showing up now is new information. I am going to ask for the lender term sheet, and a hard outside closing date. If they will not produce either, we pause the staff notification and I start calling the other party.
Do not pause the staff notification without talking to your attorney first. If you pulled the trigger with key employees, reversing that can cost you more than the deal terms. Better to keep your people informed at a high level and protect the the ones you need to run the business if this falls apart.
The lender term sheet is a good ask but they can stall on it for a week. Set a deadline for for the documents, not just for the closing. Two business days or you treat it as a breach of the LOI timeline. Written, not a phone call.
Also check whether your LOI has an exclusivity clause. If it does, and it has expired, the other party becomes a real option again. If it has not expired, you may be stuck negotiating with this buyer only while they sort out their bank.
Whatever you agree to, get the revised agreement done through counsel this week. Late-stage conditions have a way of multiplying if the buyer senses you will keep absorbing them.