Negotiate with a Plan and Define Your Red Lines

Tip of the Week

When entering negotiations on any side of the deal, you must consider, define, and communicate what you want to achieve from the deal and where your “red lines” (i.e., boundaries for key terms that you will not cross) are.

In the sale of a business, for example, the red lines for a seller will naturally include purchase price expectation, but often also encompass things like the seller’s role in the business post-closing, seller’s thinking around a rollover investment of deal proceeds back into the post-closing business for a second bite at the apple, appetite for a non-compete restriction, and the like.

While it is important for you to consider where your red lines lie, it is equally important to clearly communicate these red lines to the other side of the deal. Being clear (both internally and externally) about red lines has numerous benefits for a deal process:

• Since it gives the other deal party insight into your goals and specific pain points, it makes it more likely that the other side will be able to devise a “win-win” proposal that works for both parties—seeding the path for efficient negotiations and a quicker closing.
• It creates a feeling of mutual trust and shared goals amongst the parties—something that is essential for a successful deal process.
• It quickly flushes out whether there is an insurmountable misalignment of key expectations, saving both parties time and resources if a deal will ultimately not be possible.

We’ve talked in this space before about the importance of negotiating a Letter of Intent at the outset of the process—with Sellers seeking to maximize their leverage to nail down key red line terms before granting exclusivity. Our group has extensive experience advising sellers and buyers alike in these important discussions and paving the way for a successful deal with no unpleasant surprises.

Our weekly newsletter is published to share updates and insights from part of our team of Private Equity and M&A legal talent.

Insights

Private equity deals defy the lack of rate cuts

• The expectation entering 2024 was that private equity dealmaking would surge following interest rate cuts. This prediction was partially correct.
• Rates haven’t budged, but US private equity activity has accelerated, up 54% year-over-year, with nearly $132 billion of deal value, according to LSEG.

Hot Topics in Food and Beverage M&A

• Experts at the intersection of the food-and-beverage and M&A industries recently outlined the state of the market and shared industry trends and challenges to watch for in 2024.

Private Equity and Venture Capital Outlook

• Outlook reveals increased interest in private credit asset allocations and AI playing a larger role in deal sourcing and target selection.

Join Us: From Silicon Valley to Asia: The future of IP for tech companies

• We're bringing together some of the region’s most respected law firms to illuminate the future of patents and trademarks for tech companies selling their products and services to the East. The panel will offer practical insights, success stories, and cautionary tales related to intellectual property, protection, enforcement, licensing, and monetization.
• Wednesday, May 15, 2024 at Nixon Peabody's San Francisco office.

This newsletter is intended as an information source for clients and friends of Nixon Peabody LLP. The content should not be construed as legal advice, and readers should not act upon information in this publication without professional counsel. This material may be considered advertising under certain rules of professional conduct. Copyright ? 2024 Nixon Peabody LLP. All rights reserved.