Keys to M&A Negotiation Success
Negotiating doesn’t only happen during a tidily defined portion of the M&A process. Negotiations occur throughout the entire process, and M&A deal-makers should constantly remember that reality.
M&A negotiation: Bend where you can
Flexibility wins the day. Know what you want. Rank the most important issues as must-haves. All the rest of the details of a deal are bargaining chips. Use the deal points you don’t really need to obtain the concessions you need the most.
Don’t give away the house, but be willing to bend where you can bend in order to wrap up a deal. If a counteroffer cedes to your main wishes and asks for some concessions for the relatively minor issues, take the deal.
For example, Buyer and Seller invariably have a valuation gap (especially in today’s market). If both sides are willing to be creative, structuring can provide a bridge to valuation gaps. Although cash at closing is great (and definitely preferred), Seller may be able to garner a higher price if he is amendable to earn-outs and/or accepting a Seller note.
Although some issues are more important to you than others, never throw away a seemingly unimportant issue. What’s unimportant to you may be vitally important to another. That otherwise-worthless issue may end up being currency to help you win a concession you find important.
M&A negotiation: Take it one day at a time
The M&A process is a big roller coaster ride. One day everything goes perfectly, and you leave the office on a high from a great day of high-level accomplishment. You think you’re a deal-making genius! Nothing can go wrong. Then when you go to work the next day, everything that can go wrong does.
When you have those inevitable bad days, remind yourself that the bad day isn’t as bad as it seems. Also, refrain from being overly excited and optimistic on those days where everything goes perfectly.
Don’t believe your press clippings. Don’t let yourself get too high on the good days and too low on the bad days. You’re going to have great days; you’re going to have crushing days. Tomorrow may be completely different from today.
M&A negotiation: Continuously negotiate
For Sellers, negotiating starts with the teaser and the offering document. Buyers are negotiating from the moment they place a phone call or send an e-mail to a business owner. A wise deal-maker is always looking for an angle. You’re always under the microscope.
Throughout management meetings, due diligence, contract drafting, and right up until the day the deal closes, both sides should consider themselves in full-on negotiation mode.