Skillful negotiations are the make-or-break moment of most M&A transactions. No matter how well things appear to be going, it can all fall apart at the negotiation table. The buyer and seller must be committed to specific, clear, and productive discussions that don’t allow emotions to jeopardize their hard work.
First-time sellers commonly struggle with negotiating deals. If you’re selling your business, you must be ready to meet possible challenges, and must be willing to compromise. This means making a list of the non-negotiables well before you sit down at the negotiation table. Your team of M&A advisors should be able to help you with this undertaking. Here are some tips drawn from years of experience with M&A negotiations.
Pre-Negotiation Prep Work
It’s taken you years to build your business, and your staff may feel like part of the family. This means that there may be a lot at stake. Do your homework so you can understand your buyer. This can help you negotiate a fair deal that moves the transaction closer to closing.
Though due diligence is the buyer’s job, the seller should be well-prepared for the process. Ensure the buyer has a good reputation and is financially capable of completing a transaction. Talk to previously acquired business owners. Investigate how successful the integrations were, and whether the buyer keeps their promises.
One of the most important things to do is ensure the buyer can finance the deal. Otherwise you can end up wasting a lot of time on a deal that will inevitably fail. Establish a clear negotiation calendar that sets a viable, realistic timeline for key negotiations and transaction goals. Decide on key discussion topics ahead of time to keep your negotiations, and the transaction they support, on track. It’s also wise to draw up some ground rules before you reach an impasse. Then, when there’s a disagreement, you can lean on the understandings you’ve already reached.
Strategies for Negotiation Game Day
When you finally sit down at the negotiation table, some simple strategies can help you make the most of your time:
- Don’t sacrifice anything for nothing. You can’t win every battle, but don’t make concessions for no reason. You should never give something up without getting something in return. Even if it’s a small matter, a this-for-that approach is always best.
- Move strategically. Each round of negotiations should move your interests forward—not serve as a dumping ground for emotions and mindless disputes. Reviewing the items you have agreed to gets you on the same page and keeps the negotiations positive.
- Know when to walk away. Negotiations that drag on for weeks and go nowhere benefit no one. Don’t waste time. You don’t have to complete the deal simply because you’ve already invested time and energy into it. This impulse to complete the deal at all costs can catapult you to failure.
Experience and Objectivity Win
M&A negotiations can be intense. Seller and buyer emotions often color the process, dragging it on and making it less productive than it could otherwise be. You should be prepared for some emotional turmoil, so work hard to maintain your objectivity. An M&A advisor can help remove some of the emotion and focus on the pros and cons of each negotiated point, looking at the overall deal picture. Having a buffer in between the emotional reaction and what is communicated can certainly smooth the negotiations as well. Most importantly, remember that experience is often what wins these negotiation sessions. A skilled M&A advisor is worth their weight in gold. They can keep you focused on the ultimate goal, let you know what’s reasonable and what’s not, and take much of the negotiation burden off of your shoulders.
Preparation for a Successful TransactionBefore the team at Rua Associates brings a company to market, we work with them to identify synergistic market opportunities. We then take that information and survey the market to find buyers who can take advantage of those opportunities. This is just one step of many that we go through prior to taking a business to market. This process has typically allowed our clients to enjoy multiples higher than the standard valuation methods show. Our process mitigates the risk of bringing a business to market when value expectations cannot be met. It also facilitates finding the buyer with the right fit and enhances our ability to close the deal.