The art of corporate finance negotiation (Part 1)

Turning a blank canvas into a masterpiece (Part 1)

This is the first blog in a series of 5 that our Partner and Head of Corporate Finance, Paul Mason, has written, based on his experience of negotiating deals successfully over many years.

As corporate financiers, we advise companies, owners and directors on acquisitions and disposals day-in, day-out.  The great thing about working on so many different types of transactions with so many different counterparties is the opportunity to build  our experience.

Every transaction is different, like every masterpiece in the art world. Buyers and sellers can have completely different motivations for entering into a transaction, and oftentimes these motivations evolve over the course of a transaction.  The different approaches across geographies, between sectors and from larger corporates to smaller owner-managed businesses, can be stark.

Working as an adviser, we have the perfect opportunity to be painter-turned-critic-turned-painter again.  The teachings we offer when selling companies are those lessons we’ve learned while helping buy one – and vice-versa.  Understanding how the other side will  view your transaction is critical to maximise the chance of a successful outcome and, critically, protecting the client’s interests.

Having this insight into both sides of any deal has taught me 5 key lessons which apply to most, if not all, M&A transactions, whether you are a buyer or seller. This is the first part of a 5-part blog series that covers each.

Every conversation is part of the negotiation

This is about making sure your blank canvas is really, truly blank.  It is especially true for companies that start off having discussions of a commercial nature, but which then evolve into merger and acquisition (M&A) discussions.

At every point of negotiation and discussion you need to think about what quantitative information are you providing, intentionally and unintentionally?  Also, how much soft or subjective information are you providing, especially in relation to how you act and how you conduct yourselves?  How reliable are you proving to be? The latter has a bearing on a buyer’s view of the achievability of your budgets, for example.

The important point here is, it’s not just about the “what” that you say, it’s also about the “how”.  Effective transactions usually build a strong sense of trust between the parties and form a positive relationship between buyer and seller.  Conduct yourself in the way you would wish to continue negotiations, because you’re setting a precedent in how you act.

In the next part of this blog series I will look at one of the most critical parts of negotiating: agreeing the fundamentals of the deal, or ‘Heads’.

If you are looking to purchase or sell a business, contact Paul today on 0131 558 5800 or email paul.mason@chiene.co.uk.

 

Read part 2  – Negotiate the Heads