A re-trade, the buyer chipping the price during diligence after an LOI is signed, is usually treated as a negotiation event. It is more accurately a preparation event: the discount is the gap between what the information memorandum claimed and what the data room could support.
That gap can be estimated before a process launches. This calculator gives a structured way to do it, so an advisor can see where a mandate is exposed while there is still time to fix it.
The four inputs
- Adjusted EBITDA (A). The normalized earnings the headline multiple will be applied to.
- Headline multiple (M). The expected entry multiple, in turns of EBITDA.
- Soft-adjustment risk (S). The portion of adjusted EBITDA that rests on add-backs a skeptical buyer could challenge: discretionary costs, aggressive “one-off” items, related-party normalizations without documentation.
- Structural risk (C). Two discount pressures on the multiple itself: customer or supplier concentration that is not framed, and growth that came from price or one-time effects rather than durable demand.
The method
The exposure has two components.
Component 1, EBITDA at risk. Soft adjustments that do not survive diligence reduce the EBITDA the multiple is applied to. Their value effect is amplified by the multiple:
EBITDA-at-risk value = S × M
Apply a haircut probability if you want an expected value rather than a worst case (for example, multiply by 0.5 if half the soft adjustments are likely to be conceded).
Component 2, multiple compression. Unmanaged concentration or a growth story the buyer discounts does not reduce EBITDA; it reduces the multiple. Estimate the turns at risk (C) and apply them to the full EBITDA base:
Compression value = A × C
Total re-trade exposure = (S × M) + (A × C)
Express it as a percentage of headline enterprise value (A × M) and as turns of EBITDA (Total / A) to make it legible next to the deal’s other numbers.
Worked example: a 10-person boutique, one mandate
- Adjusted EBITDA (A): $4.0M
- Headline multiple (M): 6.0x, so headline enterprise value is $24.0M
- Soft-adjustment risk (S): $350k of add-backs a QoE team is likely to challenge
- Structural risk (C): a single customer at 38% of revenue, unframed, plus about $200k of EBITDA from a price increase treated as recurring, giving an estimated 0.5 turns of multiple compression
Component 1, EBITDA at risk: $350k × 6.0 = $2.1M
Component 2, multiple compression: $4.0M × 0.5 = $2.0M
Total re-trade exposure is about $4.1M, roughly 17% of headline enterprise value, or about one full turn of EBITDA.
That is the amount of value sitting in the space between the story and the evidence. It is not lost, it is exposed, and preparation is what closes it.
(All figures illustrative. Replace with the mandate’s own numbers.)
Using it before launch
Run this at the point where the IM is drafted but the data room is not yet in a buyer’s hands. Each input maps to a specific pre-launch action:
- High S: run a sell-side quality-of-earnings review and cut the indefensible add-backs before a buyer prices them.
- High C from concentration: frame the concentration in the IM with the context that defuses it (contract length, tenure, share of profit versus revenue), rather than leaving it to be discovered.
- High C from growth quality: separate durable growth from price or one-time effects in the narrative, so the multiple is applied to a base that survives.
- Any exposure: reconcile every figure in the IM to a source document, so diligence finds no gap to open.
A process that goes to market with this number understood, and deliberately reduced, is far harder to re-trade than one where the same facts surface for the first time in week six of diligence.