I have previously discussed in detail the financial and non-financial considerations for a company looking to grow a business via acquisition or merger . Now, it’s time to detail how you might negotiate such a deal.
Typically, having found a business that meets the requirements set out in the planning stage of identifying a target company, you will no doubt have a good idea of what you’d like to pay for the business, and how this will be structured (note: this will almost always be less than the vendor will want to sell it for!)
Therefore, you will need to negotiate effectively, so that both parties come away feeling they have a fair agreement. It is important, in my view, for both parties to believe they have got a good ‘deal’, as this will help with negotiations when trying to agree potential areas of difficulty further down the line.
All parties tend to enter into negotiations in good faith, but by the time the pressure of the deal and its completion comes around, it is quite often the case that simple issues derail a transaction.
I have seen instances of both parties to a transaction falling out in meetings, with the odd foul-mouthed outburst, and even the occasional pencil thrown! Deals have also been called off due to the excessive nature, level, or warranties sought by one party over the other, or who would continue to pay for the vendor’s company car.
How to conduct a successful negotiation
• Make sure that you negotiate with the right person. At the very least, understand who makes the decision, and how that decision will be finalised.
• Make sure that both parties understand the terminology of the deal – for example, do they understand terms such as locked box, leakage, warranties, indemnities, completion accounts, and earn-out? I would encourage the other party to seek independent advice, to avoid such issues.
• Agree heads of terms early – get these in writing and signed by both parties as soon as possible.
• Don’t sweat the small stuff! Try to keep the bigger picture in mind.
• Be open and honest with your legal and financial advisors, and most importantly the other side. They will have seen and heard most of the detail, so can help navigate the required path.
• Be prepared to withdraw if necessary. Don’t feel like you have to go through with a transaction if circumstances change for you or the company. You are not obliged to complete the deal until you sign the final documentation.
• This seems obvious, but ensure you have the ability to deliver your side of the agreement.
• Keep momentum with the transaction, and don’t let it drift. Answer queries as soon as they arise.
• Be positive!
Be aware that, during the negotiations, something will inevitably arise to adjust your initial plans. This could be down to due diligence (a topic I plan to cover in my next post), or something in the outside world that impacts on the business, such as the current fears surrounding Coronavirus. When these issues arise, it is important to fall back on the fundamental principles above.
At Rickard Luckin, our Corporate Finance team and wider client service director base have a wide range of experience when it comes to negotiating deals. We are therefore ideally placed to provide support and assistance to help you achieve a fair and fuss-free deal.
If you have any questions about the above, or would like more information specific to your circumstances, please enter your email address below and we will get in touch: