How do you get to the negotiating table?
Before we go into what you can expect from the business transitions negotiations, let’s first review how we got to this point where we have a serious potential buyer sitting at the table with your advisor.
- You made a decision to sell.
- You hired a professional advisor.
- Goals were articulated and agreed.
- The business was reviewed in detail and weaknesses that impeded full value were corrected.
- A go-to-market strategy was developed and executed.
- Leads were followed up and scrutinized
- Serious leads signed NDAs and undertook due diligence
Those leads that develop into serious, potential buyers, must sign non-disclosure agreements (NDAs) before they can conduct any detailed due diligence on the company for sale. During the marketing phase they would have only been given enough information to make a decision of whether to proceed or withdraw. Under the conditions of the NDA, they will now have access to detailed information needed to formulate the basis for an offer.
- Study your objectives, analyze your current business model and practices
- Develop financing terms that fit your financial goals
- Develop the Confidential Information Memorandum
- Source potential buyers and develop a preliminary buyers list
- Rating/Ranking potential buyers based upon agreed criteria
- Consult with you on the structuring of the sale and negotiation strategies
- Manage the due diligence process once a binding letter of intent or purchase agreement has been entered into
- Advise on content to be included in purchase agreement
- Assist and coordinate Closing documents
How will negotiations be conducted?
There are two different approaches to negotiating depending on the type of transaction. An experienced advisor will work with theseller to plan the strategy and style of the negotiations for each.
Win-Lose (Zero Sum Game) Approach
In this scenario, each side has an advisor and it is a negotiation based on price. Offers are made, counteroffers follow, and in the end one side walks away feeling they won and one side feels they lost. This approach is not necessarily the best way to maximize the value for the seller. The buyer also risks acquiring a company that does not meet their expectations.
When the advisor approaches the negotiating table armed with the knowledge of the goals and objective of the seller and the buyer, they are able to ease these into the negotiations. For example, if the buyer makes it known to the advisor that they may need some financing to make the deal work, the advisor is able to confer with their client to see if there is a role they can play. The advisor is able to structure a deal that will maximize the value for the seller but also make it a deal where the buyer wins and accomplishes their goals. Even items seemingly minor as agreeing on a closing date for the transition can be a deal breaker if both sides are unwilling to share the information regarding their position. A strong advisor will work to find areas of commonality and agreement and craft a solution based on the needs of both sides
Will I have to stick around post-transition?
Every deal is different dependent on the attributes of the seller vs the skills and attributes of the incoming new owner. There is always some type of transitional period that may be measured in months or years. Often a buyer may require the seller to transition from the business over a specified period of time, a part of earning out their purchase price. This can be a difficult conversation for former owners to negotiate and subsequently work for the new owners.
Often the tone of the negotiations for the sale establishes the strength of the potential working relationship after the sale. Sometimes, if negotiations are protracted, one or both sides can find themselves slipping into “deal fatigue” and letting emotions creep in. Owners become very attached to their business and can be hyper-sensitive and personalize comments and analysis of their life’s work. It is the role of advisor, standing between both parties, to soften the tone and communicate clearly what each side is saying. If a post transaction working relationship is part of the deal, it is very important that a positive foundation of respect and appreciation be established at the negotiations phase.
If you have any questions or would like to have a discussion of where you and your company are in terms of readiness for a business transition, please contact us. Details are below.
Candace Enman, CA, CPA is the President of WelchGroup Consulting and has more than 15 years of financial and management experience. She has played key roles in all aspects of growing a business in both the private and not-for-profit sectors. Candace believes that successful businesses do more than keep score, they build value from the ground up, and she brings that philosophy to all of her engagements. Candace Enman| President | W: 613-236-9191 | [email protected]
Stephan May, MBA is the Managing Director of WelchGroup Consulting. He brings years of experience in M&A, debt capital, private equity, advisory and restructuring services. Stephan works with companies to maximize their value and ensure a smooth transition process, whether through buying or selling your company, financing or restructuring. Stephan May | Managing Director | W: 613-236-9191 | C: 613-724-9787 [email protected]