Mergers & Acquisitions (M&A) are mainly influenced by the business’ price, synergies, commercial advantages and financial performance.
Equally important but easily neglected is the mindset of ‘investing in people’ – a seller’s response can easily turn the tables in an M&A transaction. Such logic may rattle the rational financial experts but it is actually derived from experience: better M&A deals tend to happen with sellers and buyers who have good working relationships and a professional working etiquette.
M&A consultants would usually try to involve as many relevant buyers to build competition so a seller has to go through multiple exploratory meetings with various companies; the entire transaction becomes a poker game with sky high stakes and bluffs and double bluffs poking from every direction. Preparation is then a must. Hence a lot of hard work is required for effective negotiations and smooth transactions.
A Successful M&A Negotiation Has The Following Necessary Ingredients:
Set The Meeting Agenda And Stick To It
First meetings usually involve presentations from the seller and buyers. Here, based on the Corporate Information Memorandum (CIM), the buyers are likely to scrutinise and cross-examine the business’s sales materials and the chief messaging.
Subsequent meetings then involve more of the M&A technicalities – the business valuation and essential points of the transaction. Also, more significant people from the buyer’s end will be present – the CEO, the C-Suite Executives, the management representatives from the HR, Production, Business Development and other relevant departments. Hence there will be more open and deeper analysis and meticulous questioning of the operational, financial, commercial and legal matters. Sometimes, new perspectives can be thrown out as well.
With all the above, the seller and the consultant would need to stay alert and on track. So to keep the negotiations purposeful and responses sharp, it is vital to set an agenda for each business meeting, and then update all the involved parties.
A good M&A consultant would have set the discussion topics with the seller prior to the meeting. These topics would be based on the agreed messaging and key points of the transaction, which then becomes the blueprint for the agenda.
Both parties would also receive rigorous training on strategies to tackle and effectively handle challenging questions. Such training can involve role playing, where the consultant takes on the role of a devil’s advocate and grill the seller on difficult questions anticipated from experience. These questions would revolve around the reasons for the M&A, the business valuation and the price of the transaction; the prospects and future opportunities of the business; and the synergy after the M&A.
There Are No Good Surprises
A first-time seller tends to avoid mentioning any perceived weakness of the business or the business valuation, justifying with the buyer’s perspective: they don’t need to know.
Unfortunately, everything that happened in the past and present would surface during the M&A meetings.
It is always better to be open, direct and transparent about these perceived weaknesses, and handle all objections professionally. Such strategy provides assuring contexts and commentaries that comforts the risk averse buyers in a seemingly danger zone. It is even better to supply substantial reasons and then suggest solutions. Transparency begets trust, which is a great selling point. So being honest is still a strong and effective negotiation tactic.
Different Tactics For Different Buyers
M&A negotiation tactics should depend on the wants and needs of different buyer types, hence they shouldn’t be a one size fits all approach.
The following general observations can be used for reference:
- The M&A management team of large strategic acquirers tend to involve a longer process – they may need to gather buy-in from the shareholders or get conformity with corporate governance, or seek clearance with more decision-makers. Hence patience is needed when dealing with such buyers.
- Private financial buyers or equity groups tend to be more detail-oriented, and more aggressive in negotiations but swift in decision making, borrowing on a ‘gut feeling’ when the finances stack up.
- An owner or manager buyer, likely an entrepreneur, tends to be more emotionally driven during the decision-making process. Every decision would seem to carry immense weight as personal relationships or their kids’ inheritance may be at stake. They may even toil with the idea of making the buyer a millionaire.