Entering a business deal or negotiation is akin to going to war. Both parties want to win and get the most out of the process that they can, and sometimes it’s like playing a game of chicken, seeing who flinches first. Buyers want a low price, and sellers want to mark it up as much as they can, so the parties on both sides of the table are pulling in opposite directions. Successfully negotiating in situations like this takes not only experience, but research, talent, and practice, among other attributes. Knowing what points are important in these situations is paramount to obtaining your goal in the merger and acquisition process.
The term “mergers and acquisitions” (commonly abbreviated as M&As) refers to a legal and financial process in which two companies join together — either by combining to form a new entity (a merger) — or to the process in which one company integrates a second into its business (an acquisition). There are many types and flavors of M&As, each of which has its own unique attributes. However, one attribute they all have in common is that there is a “buyer” and a “seller,” both of which are trying to get the best deal for themselves.
Working the Deal: 8 Negotiation Tactics
As in virtually every other type of business dealing, there will be some serious negotiation going on. While everybody involved is keeping their eyes on the prize (as they should), they also have to look into the future to confirm that the deal they make today will still be worth it tomorrow — and beyond. Learning what tactics and strategies to apply, along with knowing the facts and figures is important, but, like many other business dealings, there is also some art involved, along with the science.
Some common tactics to use when negotiating an M&A deal include the following.
1. Do your homework
Knowledge is power, and the more knowledge you have on the other party and the entire process, the better you’ll do. The more prep work you do in advance, the more power you will have at the negotiating table. And, of course, expect your counterparts to do their research, too, so understand they’ll be attempting to use that to their advantage.
Sure, the price is a big deal here — actually, it’s the “number” that seems to mean the most at the end of the day. But — there are other areas in the deal that are virtually as important (or even more so), but not as visible as the price. These other factors include the terms of the deal, how much ownership (or control) the buyer receives, and who pays the other costs incurred during the transaction. Those are a few examples of other factors that can be used as negotiating tools.
3. Making the concessions strategic
As the buyer, you can leverage your concessions in your favor during the deal. Letting the seller know that you have made certain concessions, then using that admission to leverage a more favorable term in some other area is to your advantage. Then you can tie these concessions to a contingency in the contract, which will void that concession if the seller fails to meet that condition. Finally, you can use some psychological negotiation tactics; you can spread out your concessions throughout the deal, making multiple smaller ones as opposed to one large one.
4. Have your top price in mind
Before getting in too deep, have your maximum price in mind, your “walk away” number, if you will. Having the power to be able to leave the negotiation if the deal gets too rich will prevent emotions and adrenaline from taking over.
5. Reading the other party
As is the case in other areas of life, knowing your opponent and their strengths and weaknesses is a powerful tool. If you’ve done your homework and know what they want out of the deal, that will help increase your bargaining power.
6. First isn’t always worst
While logic often dictates the old adage “Make the other guy show his cards first,” this isn’t always the winning strategy. By going first and making your stand, you can have the advantage. Naming your price first can set the tone for the entire M&A process.
7. Don’t feel trapped by your previous efforts
The old cliché “throwing good money after bad” comes into play here — no matter how deep you are into the process, and no matter how much things aren’t going the way you want, you can always close the book and walk away. Again, as with the previous example, have a number in mind (on the negative side) that will be your bottom “walk away” number.
8. Second guessing
Look back on your previous forays into the M&A world and see if you can learn from your past. Both bad and good outcomes in those past transactions can help your negotiating skills today.
Where Virtual Data Rooms Come into Play
No matter what type of M&A process you’re dealing with, there is no denying that having a robust virtual data room (VDR) provider is one of the keys to success. A VDR is a secure, online location where all participants can store and share the required documentation securely, yet where the appropriate parties can easily access what they need. Using a VDR in any M&A transaction saves all parties both time and money and adds security to the entire business deal.
The CapLinked Difference
CapLinked, a provider of VDRs, is a trusted partner to anyone involved in the M&A process. The tools that CapLinked provides with its VDRs include high-level admin controls, document and version management, multiple layers of security and 24/7 customer support. Its user-friendly interface and ability to work on virtually every type of computer or internet-connected device makes CapLinked the best choice for anyone dealing in a merger or acquisition. Contact CapLinked today for a free trial of its VDR solution.
Chris Capelle is a technology expert, writer and instructor. For over 25 years, he has worked in the publishing, advertising and consumer products industries.
Corporate Financial Institute (CFI) – Negotiation Tactics
M&A Science – How to Negotiate Like a Pro
Divestopedia – Key Negotiation Tactics for Your M&A Transaction