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Mergers and Acquisitions Negotiation Pointers

02/11/2021

As part of our series of articles on key M&A topics, we want to emphasize one of the most important aspects of any transaction: negotiation.
While negotiation is a subjective and complex subject, the aim of this article is to provide you with a couple of practical pointers that should support your success, whichever your negotiation style may be.

Set Yourself up for Success

It’s crucial that you set up a dream deal team to accompany you to your transaction’s success. To guide you in choosing its players, we want to introduce a couple of criteria:

  • M&A is no one-man show and you should have a team, though a small one, to play the game. This team should include you, as well as lawyers and strategic and/or financial advisors, both of great competence on both hard and soft skills. It’s very productive to foster team spirit in your deal team, and you are the best person to do this.
  • Your spirit should match that of your advisors: An M&A project is serious business, but you should enjoy the interactions with your team and know that they have a mindset compatible with yours.
  • Having the best players is not enough: they need to be highly compatible amongst themselves. On the one hand, great deal teams leverage each player’s unique strengths by acting in a perfectly united manner and using smart tactics to roll out a common and well-planned strategy. On the other hand, members of an ill-selected deal team will tend to undermine each other and try to follow contradictory tactics, often with disastrous consequences.
  • It’s advisable to compose your entire deal team early in the process, verify straight away that it’s the right team for you, and ensure that its members work well together, thus avoiding any surprises during the key moments.

If you follow these few pointers, we’re convinced you can build the absolute dream team with you at its center. Once you’re assured that you have such a team, it’s easy and immensely powerful to trust each player, including you, to play its part.

Keep Sight of your Goal and Stay Agile

Often, negotiations slide from a constructive exchange to a destructive confrontation of egos. This is not to say that, in some (rare) instances, it isn’t necessary to take a firm line of negotiation; however, the end goal should always be value creation – as opposed to some hypothetical notion of victory or the mere closing of the deal at whatever cost.

During the negotiation, you and your deal team should constantly be seeking ways to create value. The main goal is to allocate this value to you, but if more is created for both parties, your counterpart will be happy to make the deal sweeter for you.

Closing the deal is not an end goal in itself and should never be seen as such. You should strive to stay mindful at all times of whether the proposed deal truly creates value compared to the next best alternative. Keeping such constant big-picture vision is like turning the lights on in a dark room: It will allow you to know how strong your position truly is and you will be in a position to leave the table, should the proposed transaction create less value for you than its alternatives. For example, such alternatives can include negotiating the deal with a new counterpart or not going through with it at all.

Concession-Giving is a Valuable Tool

The mere possibility of giving any concession is usually not even considered because it goes against our primal instincts in what we naturally perceive as a confrontation. Typically, negotiators only concede when feeling forced to do so: How often have you heard that negotiations are power plays, where the party with the most leverage wins by forcing its preferred solution on its counterpart?

Sheer leverage shouldn’t be underestimated, but we believe that giving concessions is a solid tool to gain net value for yourself. Indeed, showing sympathy for your counterpart’s interests by conceding will increase rapport and cause a natural quid pro quo interaction, which may often get you a much more valuable consideration.

Concessions are often seen as the gift of something material to the deal: think of a warranty cap increase or the introduction of a new representation. These types of concessions are indeed effective, and they don’t even always need to take value away from the conceding party. A typical example is accepting to give a representation that you know has a snowball’s chance in hell of being breached, but that gives your counterpart a sense of safety.

To go even further, many negotiators oversee that the notion of concession is very broad: Human nature is such that expressing understanding and respect for the counterpart’s situation, interests, or feelings can seamlessly trigger the same quid pro quo reaction, thus allowing the giver to gain value “for free”.

Making the right concession at the right time requires actively listening to your counterpart and always seeking to find out what their (often untold) interests and needs are. By starting there, you’ll be able to make the right concession at the right time and achieve the desired outcome.

Feelings and Subjectivity are Central

Emotions are a central driver in human decision-making. However rational we want to believe that we are, feeling cheated, disregarded, recognized, or valued, for example, will always influence how we respond to someone. This applies fully in M&A negotiations and is as essential as it is overlooked.

Consider this example: Someone has convinced you that a blue sofa would look better than a brown one in your living room, but you feel that they were condescending about it. You know that they’re right but “out of principle”, you probably will still be buying that brown sofa…

What we can take away from this is that negotiators should always be extremely mindful of their counterparts’ emotions and perceptions. Ideally, you should foster a sense of partnership rather than conflict and strive to put your counterpart in a subjective position to further your interests and views. This is easier said than done, but small things such as non-verbal cues and validation of their feelings, for example, can significantly help.

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