A big conference table. Crossed arms, steely eyes, staring hard at each other. Extreme power play at work. So, what next? Both sides wondering how to get the deal done. The big question is who wins and who loses.
A negotiation scene can be intense in its truest sense. It tests the strength of your character. It checks how much charisma you actually possess. It makes you rethink who you are.
I remember a quote by Carrie Fisher here:
“Everything is negotiable. Whether or not the negotiation is easy is another thing.”
When we are talking about an M&A deal negotiation, I can guarantee you that it is not going to be easy at all. The buyer, one side, would always want favourable terms and lowest purchase price possible. The seller, on the other side, would obviously seek to enjoy the fruits of labour and maximize his sale price to the highest extent possible, and yes, with favourable terms as well.
M&A deals often run into hundreds or even thousands of crores, and a skilful negotiator can make all the difference. (And for you, as an M&A lawyer, it’s part of your job.)
Now, in this article, we can’t make you a master of the art of negotiation even if we wanted to. It comes through hours of practice, loads of talent and a lot of time.
However, we can surely give you a few pointers. Won’t you like that?
Here they are.
Price matters BUT terms matter too.
In an M&A deal, price is of utmost importance, I agree. But the terms matter too.
Let’s assume that it is not a complete sale. How much stake is to be transferred to the buyer? Does he have full control? Does he receive first right of refusal? Does the buyer get any recourse in case of any costly adverse occurrence to the business right after the transaction? What about seller financing?
Go beyond the price. Understand what matters for the other side and take the decision from there.
Make strategic concessions.
As Harvard Business School professor Deepak Malhotra says, “Concessions are often necessary for negotiation.” He also admits that they often go “unappreciated and unreciprocated”.
When you make a concession, you should always make sure that you are getting something in return.
Follow the four steps below recommended by the professor himself:
Ensure that the opposing side knows you are conceding. Seldom, the opposite party does not even know that it is a concession from you.
If you want something in exchange, then say it. What do you really want in return? And demand it, not just request it.
Not sure whether the other party would be able to keep up his end of the deal? Make your concession contingent, that is, on the condition that you actually get what you want.
Last but not least, spread out the concession in parts. If you are giving someone Rs 100, don’t give it all at once. Give it in two 50-rupees notes. Got the point?
What’s your “walk away” number?
Before you enter any negotiation, you should always know when you need to exit. What I mean is, you should calculate the threshold of the sale price beforehand, and once it crosses that threshold, you should leave the party.
For this, you need to research and figure out how high or low the deal price can reasonably move. Once you get an idea of that, know at what point you need to walk away without looking back.
It keeps you disciplined and protects you from unnecessary losses—like in poker.
Know thy opposition like thou know thyself
“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”
― Sun Tzu, The Art of War
The above quote says it all.
For me, a negotiation deal is nothing less than a battle. Before you enter the boiler room, know intimately where your interests lie and even more importantly, where your opponent’s interests lie.
One of the best books on negotiation, Getting to Yes lays out how the 1978 Camp David negotiations started with both Egypt and Israel fighting over the same piece of land. However, it was quickly found out that in reality, while Egypt wanted the land, what Israel actually sought was security. Once that was figured out, the whole thing went through.
One thing to be noted here—just because it is a negotiation, you don’t have to consider your opposite party the enemy. The ultimate aim of good negotiation is to create a win-win situation for both parties.
Don’t be afraid to go first.
Don’t show your hands first. Let the other guy take the lead.
Yes, I would normally follow this advice in an M&A negotiation but with one exception. I would probably make the first move when I have an information advantage over the opposite party.
Why? Because making the first move from a position of strength can provide as an anchor to the conversation. For example, if I start with an offer of Rs 900 crore and I know that I have the upper hand in the deal, it can only go up from there.
But if I do not have such knowledge that gives me some sort of leverage, I would probably play it safe.
It’s on you to make the right call.
For the curious, check out this academic paper: First Offers as Anchors.
Walk away if you need to.
Okay, let me recount a situation to you. One of my friends started the Chartered Accountancy course the year I joined the law school. After three years, when I was finished with my LLB degree and already off to my first internship, my friend was still stuck with the second group subjects of the Intermediate level.
(EIS-SM was a serious menace to his chance of ever passing the intermediate level.)
I suggested that he shift to an MBA (Finance) degree instead. Nope, he wouldn’t. While he was adamant on passing the CA course at any cost, what mattered to him the most was that he has already paid around Rs 10,000 for registration, over Rs 40,000 in private tuition and around Rs 6,000 in books and study materials.
The truth is…
Sunk costs never let you move on.
This is all the truer in many M&A negotiation deals. A boatload of dollars goes into preparing for the negotiation—due diligence, drafting, conferences and so on—making it a costly affair even before the deal is sealed.
Can you dare to leave empty-handed? Well, you should because that is the best option sometimes.
Always evaluate your negotiations.
Professors at Haas, Kellogg and Ohio University conducted a study in 2009 whereby they found that those who second-guess themselves learn more than those who do not.
But not all second-guesses are made equal.
Instead of thinking about what mistakes you did and you should avoid from the next time, you should rather focus on what more you could have done.
Did you miss any point of consideration?
Could you have spoken louder?
Could you have carried notes in the meeting?
Could you have bullied the opposite party further?
Anything and EVERYTHING that could have been done for a more effective negotiation should be thought about.
The researchers found out that effective negotiators usually learn from mentally adding instead of subtracting from reality.
Might I suggest that you do the same?
Okay, that’s about it but let’s just say, I cannot make you a good negotiator with just one email.
Study the greats.
Practice, practice and practice.
When you master the art of negotiating an M&A deal, you can probably give us a few pointers too. (I am serious.)
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