One of the most crucial – and complex! – phases of the M&A process is the negotiation stage.
During this part of the proceedings, you and the prospective buyer or seller must come to terms on a whole raft of pressing issues. These range from the final price and possible payment methods all the way through to the challenges of aligning one company culture with another.
Because most M&A deals end up failing somewhere down the line – a sobering fact to consider – the negotiation part of the M&A process has the potential to make or break the deal.
This is where your negotiation skills (or lack thereof) can have a significant impact on the merger or acquisition you’re attempting to complete. However, if you’re not entirely confident about your ability to talk your way to a successful deal, don’t fret; we’ve compiled some top tips to help you negotiate a fruitful merger or acquisition.
1. Do your homework
To increase your chances of successfully negotiating your deal, you need to start before the official negotiations begin, by doing thorough research.
It’s vital to have a firm foundation of knowledge about your prospective target, where they are a buyer or a seller, but particularly if you are in the position of acquirer. After all, you will be spending a substantial amount of money, so you need to be sure, early on, that the purchase could provide long-term rewards. This is particularly true because the M&A process can drag on for months, so to avoid wasting both your own and your target’s time, you need to have a good understanding of the pros and cons of the acquisition right from the start.
The takeaway? To give you the best chance of a successful purchase that provides you with long-term value, you need to gain a thorough and nuanced understanding of your target’s market, operations, liabilities and the potential risks of taking over. Amassing this level of knowledge will greatly enhance your ability to negotiate a fair deal and will also give you the confidence you need to take over the reins.
Similarly, if you are the one selling up, then you too can benefit from researching your would-be acquirer to help you gain an accurate picture of their suitability to run your enterprise.
This can entail questioning them about their corporate culture, their financial and market position, how acquiring your company fits into their M&A strategy, and learning about their ethics, policies, procedures, and brand values.
2. Encourage clear communication
It’s important to create a rapport with your prospective buyer or seller to help you both reach a satisfactory conclusion. This means encouraging clear and open communication during your negotiations, rather than trying to hasten things along and close the deal as quickly as possible.
Buying or selling a business is a significant step for everyone involved so you should all be able to talk openly and non-judgementally about your objectives and concerns.
Creating a positive environment for your negotiations will make the eventual success of the transaction more likely. If the other party can develop trust in you, then they will be more likely to want to buy or sell; they will also be less likely to hide things from you that they may not otherwise have been transparent about.
It’s also important to start out on the right foot from a communication perspective if the transition period is going to be several months long and you will need to work together to guarantee a seamless handover. You shouldn’t be afraid to ask questions, voice concerns, and have frank discussions about anything from finances to supplier contracts.
3. Don’t be afraid to slow things down
Because the M&A process can take so long, it can be common for both parties to develop what’s known as ‘deal fatigue’. While this is understandable, it can also be something of a problem, particularly if you begin to feel tempted to speed things along.
Rushing through a deal can expose you to all kinds of problems post-merger or acquisition, including the discovery of hidden costs or legal problems, and a rocky relationship with your target and their employees.
If you are beginning to crack under the pressure of trying to successfully orchestrate a deal, then it’s important to slow things down and regain clarity and composure. This is particularly true if there are some things about the deal that you have reservations about. Don’t be afraid to ask for more time to think things over; this is an important negotiation skill.
4. Focus on synergy
Whether you are buying or selling a business, there’s no denying the importance of synergy.
Yes, getting the right price is, of course, crucial – but many business owners also look for a company that will be the right ‘fit’, and this is where that synergy comes in.
In the world of M&A strategy, a synergy is defined as those advantages that businesses can achieve by merging with or acquiring another business. These advantages could include diversified products or services, an augmented team, and enhanced growth prospects.
Prioritising synergies when you are looking to sell or acquire a business will help to ensure that you look for – and find – the right targets. This, in turn, will make your negotiations more likely to proceed smoothly, as both parties will have a clear awareness of the mutual benefits that will come from the merger or acquisition.
5. Volume is key
If you have ever negotiated before, then you will be aware of how important it is to have some leverage.
In M&A, this leverage comes from having more than one offer on the table. Whether you are buying or selling, merging or acquiring, it’s recommended that you do your best to gather several prospective targets.
It surely goes without saying that having just one or two offers can place you in a difficult situation, as neither offer may be what you had in mind, but you will have no choice but to negotiate.
The more offers that you have available to consider, the more likely you will be to find a suitable candidate and curate an optimal deal.
6. Keep calm and carry on
Last but not least, when it comes to the art of negotiating it’s important to keep your emotions in check.
Of course, this can be easier said than done, especially if you’re on the sell-side of a deal. It’s impossible not to become emotionally invested in a business that you probably built from the ground up. However, powerful emotions can get in the way when it comes to negotiating, which requires a clear head and a calm manner. As a result, it’s best to give yourself some time to compose yourself if your feelings become overwhelming.
How Harris Acquire can help
Hopefully, these top tips will prove invaluable as you enter the negotiations phase of the M&A process. However, if you’re still not feeling entirely confident about negotiating a successful deal, never fear – perhaps you need a trusty business broker by your side to ensure the negotiations proceed as smoothly (and with as little stress) as possible.
At Harris Acquire, we have plenty of experience and insider insights to draw upon which will help both you and your M&A target reach a mutually agreeable deal. We will guide you through every step of the process, including the negotiations phase, removing the hassle and the headache from mergers and acquisitions, so you can focus on crafting your next chapter.
