There are many types of negotiations; all are
unique. A skilled negotiator in one setting will not necessarily
be expert in others. This is generally due to a lack of familiarity
with the subtle complexities involved in that specific type of negotiation,
which might be outside the scope of their experience. For a moment,
reflect on the differences in the four following types of negotiations:
an acquisition transaction, a union contract, an athlete's contract
and the determination of the selling price in a supply contract
between a customer and vendor where the two have a continuing relationship.
You probably deduced that these four negotiations are as different
as night and day. The differences include the prior relationship
between the parties, the necessity for the continuity of a relationship
after the completion of the negotiation, the degree of interdependence
between the parties, and the replaceability of a party in the case
of deadlocked negotiations. However the most significant difference
is the variables and factors that the parties use to generate leverage
over each other.
Acquisition negotiations are unique for several reasons, including:
||It is a one-time contest between
||Generally, there is disproportional
strength and power possessed by the parties, as the acquirer
is usually much larger and has considerably more clout in the
||The acquirer is usually much
more familiar with the acquisition process.
Obviously, this makes it mandatory
for a selling owner to find a way to level the playing field.
Negotiating an acquisition is an art not
a science. It is the art of exerting pressure on one's adversary
through maximum utilization of all available leverage points. Negotiations
are a test of wills and the ability of one person (company) to superimpose
their will on another. The following nine critical points can enable
a selling owner to level the playing field and achieve ultimate
success in negotiations.
||Do Not Avoid Confrontation
Negotiations are confrontational by their
very nature. It is absolutely essential that a selling owner
recognize this and not attempt to avoid necessary confrontation.
However he (she) should never be the one that instigates it
either. The successful negotiator conveys that their will
is going to prevail without demeaning their adversary. He
should be demanding and controlling, but in a positive way.
Unfortunately, confrontation is usually provoked because large
acquirers usually demand more than they have a reasonable
right to expect. However if you are knowledgeable about your
situation, realistic in your expectations and stand your ground;
you should be able to sustain your position. Acquirers will
usually resent your strength, however they will respect you
for defending your position.
||Know Your Goal And Always
You must stay focused on achieving the
primary objective(s) of your negotiating strategy. Don't become
obsessed with secondary issues. Many a negotiator has failed
because they became obsessed with winning a specific battle.
To achieve the ultimate success, you must remain single-minded
in purpose to achieve your primary goal. Rarely is a war won
where one side wins all the battles. You want to win the war.
My Firm has an unwritten rule that we never make an unjustified
price concession after a transaction price has been established
at the letter of intent stage. However in a deal for a West
Coast electrical supplies distributor, the acquirer demanded
an unjustified price reduction after the Letter of Intent
had been executed. No substantive reason was given. The selling
company had many vulnerabilities that had been camouflaged
from the marketplace. In addition, the acquirer's original
price was considerably in excess of the expected transaction
price. No other acquirer had made an offer that even equaled
market value. Correspondingly, and in violation of my basic
principle, the price reduction was grudgingly accepted as
the reduced price was still 4% over the expected transaction
price. Although the selling owner lost the battle, he won
the war as the transaction price was in excess of market value.
Of The Expected Transaction Price; The Impact Of Your Credibility
And Patience On Obtaining This Price
You must know the future
potential that your Company provides an acquirer and the
future vulnerabilities of your business niche. You should
be aware of all major issues impacting the acquisition.
You must understand how the business foundation, the major
issues, and your Company's future translates to an aggressive,
premium market price. You must be able to intelligently
answer the acquirer's questions about your Company and its
future prospects. The ability to do this will portray your
total command of the situation and will establish credibility
with the acquirer. This should enable you to obtain the
control necessary to sustain the maximum acquisition price.
negotiations, define a realistic but aggressive expected
transaction price. An acceptable bottom line price should
also be determined. After these have been established, an
asking price can be set. Prudent strategy provides for a
reasonable level of movement between the asking price and
expected transaction price, so that your ultimate objective
can be obtained without demeaning the opposing negotiator
by making him feel like he is being bludgeoned. Once your
pricing expectations have been established, a deal should
not be transacted until this price is obtained. If the deal
does not evolve as quickly as you like, be patient. In certain
situations, deals only happen when they are ready to happen
and acquirers only move when they are ready to move.
A few years ago
I sold a Southwestern truck parts distributor. The transaction
was not consummated for 2 1/4 years. However when the deal
was done, the selling owner received a fully-priced, all-cash
deal with minimal exposure to post-closing liabilities.
Obviously, this was the time when conditions were present
for our expectations to be satisfied.
Obtain And Maintain Control
From the first meeting,
both parties are trying to obtain control and dominance
of the negotiations. The establishment of control will accrue
to the party that has mastered the complex psychological
factors underlying the negotiation of an acquisition. The
party that initially establishes control gets momentum.
Once this occurs, the controlling party is generally able
to obtain the majority of concessions, and usually the most
important ones. In addition, once a party gets control,
it is extremely difficult to reverse the roles.
Utilize Leverage From Multiple Acquirers
Do not provide an acquirer
an exclusive look. Your objective is to obtain offers from
all potential acquirers as close together as possible. The
leverage from these competing multiple offers could put
you in the "drivers seat". It might precipitate a bidding
contest that produces a price in excess of the expected
transaction price. Recently, my Firm represented a machine
tool manufacturer. The offer of a major strategic player,
which satisfied our expected transaction price, was selected
from many competing offers. As we were in final negotiations
on a Letter of Intent, one of the losing bidders reinstituted
contact. I told them to make an offer within 24 hours that
I couldn't refuse. Subsequently, they offered a price that
was 15% in excess of the expected transaction price. Only
the participation of multiple acquirers with acceptable
offers enabled the realization of this transaction price.
All Acquirer Contacts With Vendors, Customers And Employees
No such contacts should
be instituted until after a letter of intent has been signed.
In fact, to the extent that you can reasonably limit the
contact between the acquirer and these parties at any time,
it will be helpful in minimizing the disruption to your
Company. However if an acquirer feels these meetings are
essential, you should attempt to be present at all meetings.
Unless your presence in a particular meeting could reasonably
be construed as an attempt to restrict the free flow of
information, make it your business to be there. When an
acquirer wants to meet these parties, ascertain what they
are trying to learn. You should then adequately prepare
these parties for the meeting. This does not mean that you
are trying to "stage manage" the meeting. Instead, it reflects
your intention to preclude any parties not thoroughly familiar
with all aspects of your operation from providing erroneous
or misleading information.
Obtain all the information
that you can about the acquirer, its results, and their
outside advisors and key executives involved in the deal.
Also attempt to determine the acquirer's deal motives and
strategic needs that can be satisfied by the acquisition.
An assessment should be made of the personalities of all
participants on the acquirer's negotiating team. You should
try to determine the motivating factors of these participants
- both their personal and group goals. Unfortunately, the
participants often have different personal objectives than
the acquirer's group goal. If you are unaware of the participant's
self-interests, their actions might surprise you and possibly
derail a deal. Therefore the definition of the participant's
personal goals is of critical importance to a selling owner.
You can then develop a negotiating strategy that enables
you to defuse the impact of personal goals that conflict
with group goals, thereby substantially increasing your
likelihood of success.
In a recent deal
that my Firm consummated for a PVF distributor, I determined
after the initial meeting that the acquirer had a desperate
need to obtain my client's #1 market position in their trading
territory. I sensed they wanted it so badly that almost
anything could be obtained. Consequently, I was able to
extract a price that was 9% in excess of our expected transaction
price. In addition, the reps and warranties were so lenient,
providing my client with absolutely no post-closing exposure,
that the acquirer's attorney said as the Definitive Purchase
Agreement was being negotiated, "we don't do deals like
that". I suggested to the acquirer's Senior V.P. handling
the transaction, that he clarify our deal for his counsel.
The Senior VP responded by saying, "those are the terms
I acceded to or I would have lost the deal". Only by knowing
my adversary was I able to sense that a price and deal terms,
which otherwise would have been unrealistic to expect, could
Not Divulge Unrelated Or Unnecessary Information
Do not allow your ego
to get out-of-control. Stick to the basic facts about your
Company that are of interest to the acquirer. Do not unnecessarily
stress your personal accomplishments and interests or discuss
your specific plans after the deal. It is a mistake to exaggerate
or emphasize your importance to the Company. Remember, even
if you are going to work with the acquirer for a period
of time, the acquirer is most concerned about how profitable
the Company will be after you leave. Consequently, stick
to the specific attributes of your Company, its products,
its market position and any other relevant information that
the acquirer wants to know. Many novices unnecessarily derail
deals by the disclosure of a seemingly insignificant fact.
Straightforward - No Game-Playing
A direct and straightforward
negotiating approach is most likely to result in successfully
consummating a deal. It will facilitate the development
of trust and respect amongst the parties. In fact, this
candid way of approaching a deal exudes the strength that
you want to convey. Game-playing during negotiations does
not generally produce successful results. It tends to be
counterproductive. Games are self-perpetuating and usually
expand to permeate all aspects of negotiations. They further
complicate an already complex situation. The avoidance of
games will significantly increase your chances for success.
In these times when
business is increasingly being conducted on a global basis,
it is likely that the acquirer will be a large national
or multinational company. The adherence to these nine key
negotiating points will level the playing field for a selling
middle market owner. His (her) familiarity with the intricacies
of the negotiating process and their ability to expertly
execute these points will determine the likelihood of achieving