Win-Win M&A Negotiations

In the movies, businesspeople are usually portrayed as hard-bargaining dealmakers who never give an inch when money is on the table. As the buyer or seller of a printing business, you’re correct to be firm in your own mind about what you expect from the other party to bring to the transaction. But, firmness isn’t the only quality to bring to an M&A negotiation if you want it to end successfully for everyone concerned.

As advisers to print company owners on both sides, we’ve seen again and again that empathy, realism and attention to detail are the negotiation strategies that bring deals home. We’ve also witnessed how forgetting these points can lead to deal-killing disagreements that, in hindsight, almost always look trivial.

Empathy speaks for itself. An M&A negotiation isn’t an adversarial exercise; it’s a working partnership that aims to reach a mutually beneficial conclusion. Seeing the seller’s point of view from the buyer’s, and vice versa, keeps the process constructive and moving in the right direction.

If, for example, you want to ask for something at a late stage of discussion, be prepared to give something in return. Try to anticipate what your counterpart will accept as the reciprocal gesture. Chances are good that neither of you will have much trouble saying yes.

Approaching the task realistically means understanding that by the time both parties have signed a letter of intent (LOI), most of the heavy lifting of structuring the deal will already have been done. Now isn’t the time to go back and reinvent the wheel. The objective is to spot any potential snags that may have arisen during due diligence and prevent them from becoming impassable roadblocks.

Maintain a Proper Perspective

We can’t stress enough how important it is to keep these things in perspective. In one case, a tax question that came up at the last minute caused one of the parties (who, by the way, didn’t notify his M&A advisers about it) to take a hard line, scuttling the deal. The irony was that the tax consequence would have represented only a tiny percentage of the value of the transaction — surely not worth killing it over.

With all due respect to our clients’ attorneys, our advice is always that when lawyers are brought in to the process, they must remember that their role isn’t to renegotiate what’s already been negotiated by the parties. We regretfully recall what happened when, four days before the scheduled closing, a seller’s attorney decided to ask for more than 15% over the agreed-upon price.

If counsel had stuck to helping their client deal with any legal oversights that may have needed attention as closing drew near, the transaction probably would have sailed through instead of grinding to a permanent halt.

To this day, that seller wishes his attorney had preserved the original terms and had not tried to renegotiate, as the seller is still trying to find a buyer for his business.

Realism is also called for when buyers examine the books of business they are acquiring. Some accounts are less productive than others, and just about every printing company has customers that don’t contribute as strongly as they could to revenue and profit.

We believe that, in most cases, a buyer who finds weak performers on the seller’s client list makes a mistake by trying to leverage this fact of business life as a negotiating tactic. Concentrate on the total value that closing the deal will create, not on the small change that might be lost around the edges.

If Staying, Work Out Your Compensation

One other thing to say about realism applies to selling owners who’ll stay on in a management role after closing. Your compensation going forward will probably be at market rate, which likely means less than you’ve been used to receiving. If you have concerns about pay, raise them early in negotiations — close to closing isn’t the time to confront the buyer with them.

Tying up loose ends so that they don’t turn into tripwires is the essence of attention to detail in negotiation. Pay particular attention to excluded assets — property that the buyer does not wish to convey to the seller when the transaction closes. The seller should make a checklist of excluded assets and present it to the buyer well in advance of closing to prevent misunderstanding about what is and what isn’t part of the package.

Company-owned cars for owners’ personal use often appear on lists of excluded assets, but so do works of art adorning the conference room; antique furniture in the president’s office; and that old Heidelberg letterpress that has been standing in the lobby for generations. Make an early effort in good faith to account for everything that’s to be excluded from the transaction, and disagreement about these items will be minimal.

The best way to make empathy, realism and attention to detail the keynotes of negotiation is to work with a professional M&A adviser who knows from experience how crucial to the process they can be. For most buyers and sellers, an M&A transaction probably will be an unfamiliar situation, as well as a source of uncertainty and stress — circumstances that may not bring out the best in their negotiating styles.

Acting as an intermediary, an experienced M&A adviser can buffer the emotion and ensure that both parties stay focused on the essentials of the deal. By helping the buyer and seller have valid expectations of each other, the adviser keeps their positions from hardening and guides them to a result that both sides can legitimately consider a win.

Even in cases where only one party is represented by an adviser, the outcome can still be positive all-around. This is because the adviser knows that the straightest path to protecting the client’s interests lies in making the transaction work for the other party as well — the surest indicator that “negotiation” in the best sense of the word has taken place.