Better Negotiation of a Business Sale

Negotiation of a Business Sale

What is a deal? A deal is made when all parties to the transaction feel they have been fairly treated, are getting fair value for their investment or payment, and believe this deal is better than any other option available at the time.

The aim of a negotiator is to either get a deal done or get out of a deal that’s not going to go anywhere. The second part of this is just as important as the first.

What makes a good negotiator?

1. Prepare your client for what could be an ordeal. This includes:

• Explaining the stages of the process from preparing an information memorandum through to heads of agreement, due diligence, and the formal contract of sale.
• Setting expectations and clearly outlining the process. This is crucial if your client is less experienced than the buyer. Rigorous requirements, including procedural requests and demanding contract terms, could unsettle your client at the wrong time.
• Emphasising that every deal has twists and turns and only one out of ten is simple and straightforward.
• Understanding that your client may be doing this for the first and last time, while you are a seasoned professional. Don’t take anything for granted and walk alongside your client on this journey.
• Helping your clients see beyond the contractual issues, if they are there, to see what lies ahead, while protecting them all the way,

2. Nurture a good relationship with your client’s advisors.

• Prepare the accountant of the client for what will be required before and during due diligence.
• Work with the client’s legal representative so that each of you understands their role in the process after agreement on price and commercial terms.
• Clearly enunciate your role to the client. While the lawyer is there to safeguard legal interests and the accountant to provide the financial evidence and advice as required, your role is to simply to smooth the passage towards the deal. Your role is certainly not less important than any other.

3. Set a timeline that is reasonably achievable and then stay in control of delivering the milestones.

4. Maintain constant contact with your client. This reassures them and ensures they are fully informed along the way.

5. Thoroughly prepare your client’s case for sale. This involves:

• Understanding what is for sale and its worth.
• Setting a supportable price or implementing a process to arrive at that price, using private treaty, an expression of interest process, or auction.
• Compiling evidence to support the price and other terms of the deal.

6. The following skill set will be helpful:

• The ability to read and understand contracts and their terms.
• The ability to gauge the relative levels of experience of the parties.
• Empathy for how each party and their advisors are feeling and their respective motivations and emotions. This could extend to understanding personal preferences, personality styles, fears, biases, and other psychological features. Develop a sense of where the other parties are at during the negotiation process.
• A willingness to be respectful of all parties and their interests on the way to the deal.

Summary: A good negotiator understands the business, the client, all parties involved, including advisors and representatives, and knows how to get a deal done or exit a process that won't lead to a deal. If you have done the work, you should be confident in your position as the negotiator. You can afford to be forceful without being aggressive if you believe your path leads to a successful deal.

Post Script: A specialist has a better chance of success as a negotiator since knowledge of contractual issues and terms, and an ability to price the business properly, offers a distinct advantage.

“Some people just sell things. Others carefully nurture deals over the line.” Anonymous Business Broker.

#MandA, #Business Sales, #Negotiation