The art of corporate finance negotiation (Part 5)

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

Part 1 (Every conversation is part of the negotiation) can be found here.

Part 2 (Negotiate the ‘Heads’) can be found here.

Part 3 (Don’t sweep it under the carpet) can be found here.

Part 4 (Be consistent and … be consistent) can be found here.

Be true to yourself (Part 5)

The worst deal you will ever do is the deal that is simply “wrong”.  This situation is far, far worse than failing to do a deal at all, except in very specific (usually distressed) situations.

In most cases if this transaction falls over, there will be another deal, another day.  However, if you strike the wrong deal then you and the other party are stuck with it.  You can’t rub your name away in the signature block and pretend it never happened.

In the week leading up to a deal completion, we often sit down with our client and ask them if they really want to do this.  We ask them to think about what it’ll feel like after they’ve signed and they either do – or don’t – go into work the following day.  What will they be thinking in 6 months or a year’s time?

If we’ve properly identified the real reason for a transaction at the beginning, then such a session is usually comforting for the client: it might allow them to vent their frustrations over how certain parts of the process were more painful than they expected, but usually there is a solid re-affirmation of their original intentions.

The only times we’ve had clients who have wobbled is when they’ve been unsure why they want to do the deal.  They might have been swayed initially by the prospect of a financial windfall, but as they progress through the deal, the prospect of staff redundancies and the simple realisation of the current owner manager that he or she will no longer have their usual daily routine after their consultancy “transition” finishes can make them re-assess whether this is the right deal.

There’s no upside from not being honest with yourself about what you really want.

The final brush strokes

Making sure the seller and the buyer understand and express what they want from the deal is vital.  Honesty and integrity helps lessen the burden of what will be a brutal process, from Heads through to completion.  There aren’t any shortcuts to a good deal – the right deal – but there are plenty of ways to shortcut to the wrong one.

And, if you are considering embarking on an M&A process, chances are it has probably already begun.  Those initial commercial discussions that have taken place… they’re the first few strokes on your otherwise blank canvas.  Now it’s time to turn it into a masterpiece.

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

 

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