We Assist In Your Arizona Business Sales Negotiations
Broker / M&A Advisor Active Involvement: It’s important for the broker M&A advisor to play an active role in negotiating. The broker advisor should handle all the tough questions. Remember, the adage Good Cop Bad Cop. It comes into play. The owner should be the good cop, not the broker advisor. So, once the deal is closed, the buyer will continue to have a positive feeling for the owner and the business. The owner might continue to be involved. It’s not good if negotiations turn nasty and personal. That will solve nothing but sour the deal or even break the deal.
Listen To The Buyer: Listen closely. Let the buyer explain his goals and objectives and how your company fits into that plan, as well as how it may fall short. Listen to his concerns. The initial qualification of the buyer prospect should have told us much. Now we get inside his head as to the details of his search. The more we know about him and his interest in the company, the better we can respond and position our response.
The LOI, Letter Of Intent puts a price and terms on the business. Now begins the formal negotiation process. Actually, if the business has been prepared properly, documents aggregated, and relevant information assembled and presented, the laborious but constructive work is behind you. You’ve registered the value of all the company assets and its strengths. You now can refer to them backwardly to re-emphasize value. Included were things like financial consistency, profitability, growth, intellectual property, patents, trademarks, company reputation, brand strength, revenues, profits and cash flow.
Now Comes Negotiating: It should look more like a psychological show and tell. Most, if not all the information has already been displayed. It now needs a focus. Emphasize the company strengths, minimize the weaknesses, and show solutions for each of the weaknesses. Show how they may be minimized, overcome, removed so they impact the overall business growth and future minimally. They might need further owner commitments.
Two Elements To Negotiation: Economic and Psychological: I believe there are these two elements of negotiation. The economic deals with financial issues, structural, organizational, personnel, management, client and vendor issues. These might be classified as the hard issues, and the soft issues are the feel good issues or psychological issues. How the buyer feels about the purchase and each asset of the purchase is important. Hence it’s crucial as to how they are presented and dealt with so the buyer has a warm and fuzzy.
Of course, it’s best to have considered each before the negotiation. Since all the information has already been aggregated and disclosed, most likely each has been positioned in a trustworthy, understanding manner, rather than the buyer having just discovered those problems or weaknesses in due diligence. That might make it appear as if the seller overlooked them or hid them.
Price Is Not Everything: Deal terms matter immensely. Earn-outs, seller-carry notes, deal structure, and consulting agreements can all add up and return more to the seller than the cash-selling price.
Who Is The Buyer? Do some homework. Know whom your dealing with. What makes them tick. What items are firm and which are flexible. That will help structure the deal to the buyer’s approval. He may give on one point and not another. Keep in mind that the negotiator for the buyer is different than the negotiator’s company. Know or consider the differences in motivation for each. Also know the industry and your comparable companies so as to highlight your company strengths.
Concessions: When making them, try always to request a tit for tat exchange. An earn-out might mitigate growth issues or client retention issues and allow the seller to earn or keep that upside price.
Psychologically: We focus on disclosure and thoroughness of information, hence, making the buyer more comfortable in knowledge of the company and eliminate anxiety; create a commonality in purpose between buyer and seller in helping buyer to understand the company; position the negotiation such that a partnership atmosphere is created between buyer and seller in mutually bringing the sale through a successful transition; both buyer and seller want it to work; and offer solutions to buyer concerns to alleviate them economically and psychologically and yet keep or add value to the seller. Earn-outs, seller notes, consulting agreements, trading one value for another, can all work to offer solutions to buyer issues.
At the end of the day, you have established a minimum in mind: Consider the consequences of selling too cheaply and not getting the price you need. Your financial and psychological future health may depend on it. Once the buyer knows and has tested your minimum, he should re-consider your counter offer to get him his value. He should have had a good assessment of your price before now. Springing a no go at the 11th hour is not a good buyer anyway. He likely will do it again if you give him the chance via extended deal terms and earn-outs, etc. You long ago established your minimum, unless something has changed for you. Focus on other prospects now. A good broker advisor would have kept them in play.
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