It's no secret that M&A transactions require negotiations. But what most people don't realize is that how you approach negotiations can determine the success of the overall transaction and your future relationship with the other party. If you have the right mindset, both parties can have a positive experience during negotiations. Larry Forman, Senior Manager at Deloitte, is here to help us understand how to approach M&A negotiations to increase deal success.
“When you’re going through a negotiation, focus on what you really need. It's not about trying to out-negotiate the other party. It's about trying to find a middle ground that works for both sides” - Larry Forman
To get to the right mindset, Larry uses three key pillars of negotiations: Be fair, be open, be empathetic.
According to Larry, always give yourself time to think. Don't negotiate on the spot when everybody's heated because you will probably do something that you will regret moving forward.
As a seller, try to do reverse diligence before anything else. It allows you to mitigate risk before you put your business up for sale. And even if you can’t mitigate some of those risks, you will be able to offer mitigating processes for the issues found if you are aware of what they are.
Reverse diligence also limits the surprises during buyers’ diligence that will prevent huge price cuts for your company. You don't want people to think you're hiding something from them. Gaining trust is important as you approach discoveries in due diligence.
Unlike the seller, you have more to consider other than price. There are a lot of negotiations that need to be done from start to finish. Below is a list of the frequently negotiated items during an M&A transaction, and how you should approach them:
Also, if you are a large company that is divesting a business unit, watch out for the seller’s definition of your business. There are instances where the seller might define your business too broadly that it might hinder your parent company to operate.