Strategies for Effective Sell-Side M&A Negotiation
The ability to successfully negotiate a deal can be the difference between a successful M&A transaction or a failed one. First time sellers frequently struggle with this process, both because they do not know which deal terms are most important and because they may allow their emotions to interfere with their negotiating strategy. An experienced M&A team will present them with options and terms that they may not have considered - so keeping an open mind and being prepared to compromise is important. The following strategies can make the negotiation process run smoothly.
Planning for Negotiations
Business owners have likely devoted much of their lives to their business. Their employees may be considered a second family. There’s much at stake here. While due diligence is an important buyer duty, it’s not just for buyers. Entrepreneurs should assess the buyer’s reputation and image, weigh whether they are financially prepared to complete the transaction, and talk to the owners of previously purchased companies. Ask about how successful integration was, and how well the buyer adhered to their promises. Additionally, business owners must make sure that their businesses are prepared for the due diligence process. Madison Street Capital previously posted a sell-side due diligence article here.
Negotiation Day Strategies
When negotiations finally commence, some basics deal-making tactics can help business owners get the most for the least effort:
- Leverage a “deal team”. Entrepreneurs will need to maintain a positive relationship with the buyer for successful post-merger integration. An M&A advisor will act as an impartial negotiator on the entrepreneurs’ behalf, reducing the chance of their emotions negatively impacting the deal.
- Move strategically toward their interests. With every round of negotiations, move closer to the end goal. Don’t get trapped in emotional disputes and time wasting arguments. Instead, devise a plan for negotiations and stick with it.
- Control emotions. Buyers know that owners have invested a lot in their business. So they sometimes use this emotional attachment as a weapon. Don’t let flattery blind to a bad deal, and don’t allow anger over some harsh words to cause an otherwise good deal to fall apart.
Know the Value of Objectivity and Experience
The negotiation process is inherently intense, and emotions can be an immense distraction. Show up prepared for a little turmoil, but be prepared to remain as objective as possible. A skilled advisor can help take emotion out of the picture, and prepare business owners for what will happen during the negotiation process.
Experience often carries the day when it comes to M&A negotiations. The buyer will likely have an experienced team on their side of the table. They may have bought businesses before. Don’t be outmatched. Hire an experienced M&A team to level the playing field and ensure the process is fair. This way, the buyer can’t take advantage of any blind spots.
About Madison Street Capital
Madison Street Capital is an international investment banking firm committed to integrity, excellence, leadership and service in delivering corporate financial advisory services to publicly and privately held businesses. Over the years we have helped clients in hundreds of industry verticals reach their goal in a timely manner.
Our experience and understanding in areas of corporate finance and corporate governance is the reason we are a leading provider of financial advisory services, M&A, and valuations. With offices in North America, Asia and Africa, we have adopted a global view that gives equal emphasis to local business relationships and networks.