Price chipping is a buyer cutting the price after due diligence, justified by the risks the review found. It is a standard tactic, not a sign of bad faith. Defending against it means finding those risks first, pricing their impact before the conversation, and locking mechanisms into the documents that limit how far the price can move.
What it looks like in practice
The pattern repeats. The buyer makes an attractive indicative offer, gets exclusivity, runs the review and comes back with a list of findings. Each finding has a number attached. The sum of those numbers is the new price proposal, usually ten to twenty per cent lower.
The owner is then in the worst possible position. Several months of process are behind them, adviser costs have been paid, the other buyers have dropped away, and inside the company some people know something is happening. Time pressure and fatigue work for the other side.
Six arguments that come up most often
- EBITDA adjustment. The buyer rejects some add-backs as undocumented and recalculates the price from a lower base.
- Working capital. The level treated as normal is defined higher than the seller assumed, which reduces the amount due at closing.
- Debt-like items. Leases, arrears, unpaid dividends and owner loans move into net debt.
- Tax risk. An unclear treatment of earlier filings is priced as a potential liability.
- Customer contracts. No written agreements, or clauses letting a customer walk away without notice on a change of control.
- Dependence on the owner. The argument that part of the revenue is at risk once the founder leaves, used to justify an earn-out instead of cash.
None of these arguments is invented. Each concerns something that genuinely exists in the business. The difference is whether you hear about it from the buyer or knew about it beforehand.
Four things that actually protect the price
Examine the company before the buyer does
Vendor due diligence moves the whole list of findings to a stage where nobody is pressuring you. Some things can be fixed, some priced into the asking figure, and the rest prepared with an answer. A buyer who hears a ready answer to their objection rarely stays with it.
Document every adjustment to the result
An add-back without a document is an add-back that does not exist. Invoices, contracts, minutes, schedules. Anything showing that a cost was one-off or will not recur under a new owner. This work, done before the process, is worth more than any argument in negotiation.
Define working capital in the LOI, not the SPA
The price adjustment mechanism is usually settled at the sale agreement stage, when the seller has no alternative left. Agreeing the definition of normal working capital and the list of debt-like items at the letter of intent stage, while competition still exists, closes the largest door to a cut.
Do not give exclusivity away for free
Exclusivity is the buyer’s condition for spending money on the review, and that is fair. But it can be time-limited, tied to a timetable, and drafted so that a material change of terms after the review releases the seller from it. A buyer who knows that cutting the price brings competition back negotiates more carefully.
When a reduction is justified
Not every adjustment is a tactic. If the review uncovers a real liability that was not in the numbers, the price should reflect it. The adviser’s job is not to defend the price at any cost but to separate substantive findings from negotiating ones and show the owner which is which.
A practical test: if the argument concerns something that changes the company’s future cash flows, it is substantive. If it concerns a risk that can be covered by a clause or an escrow, it is a question of structure, not price.
What to do about it
The best time to prepare for price chipping is a year before the sale, not a week after the findings list arrives. We describe that work on the value growth programme page, and the full transaction process on selling your company.
Common questions
Is price chipping normal?
It is common. Assume an adjustment will be proposed after due diligence and prepare for it, rather than treating it as evidence that the buyer is acting in bad faith.
How much do buyers usually try to cut?
It depends on what they find. A prepared company with complete documentation and evidenced earnings adjustments gives far less to work with than one entering the review unprepared.
Can I simply refuse?
You can, and sometimes that is the right answer. How much weight the refusal carries depends on whether you have an alternative, which is why a process is run with several buyers and exclusivity is kept short.
See also
- Red flags: 12 areas every buyer examines, the list of things that hand a buyer an argument for a discount
- Price chipping, add-back and working capital in the glossary
- Teaser and information memorandum, because well-prepared documents leave less room for adjustments
About the author
Łukasz Brzyski runs Brzyski & Partners Management Consulting. He advises on the sale and purchase of companies valued between PLN 10 and 50 million, and sold two companies he co-founded before he started advising others. More about the author