There are many types of negotiations and all are unique. A skilled negotiator in one setting will not necessarily be an expert in others. This is generally due to a lack of familiarity with the subtle complexities involved in that specific type of negotiation, which might be outside the scope of the negotiator’s experience.

Acquisition negotiations are unique for several reasons: It is a one-time contest between the parties; generally, there is disproportional strength and power possessed by the parties, as the acquirer is usually much larger and has considerably more clout in the marketplace; and the acquirer is usually much more familiar with the acquisition process.

Obviously, this makes it mandatory for a selling owner to find a way to level the playing field.

Negotiating is the art of exerting pressure on one’s adversary through maximum utilization of all available leverage points. Negotiations are a test of wills and the ability of one person or company to superimpose their will on another. The following nine critical points can enable a selling owner to level the playing field and achieve ultimate success in negotiations.

1. Do not avoid confrontation
Negotiations are confrontational by their very nature. It is absolutely essential that a selling-owner recognizes this and does not attempt to avoid necessary confrontation. However, he or she should never be the one that instigates it either. The successful negotiator conveys that his will is going to prevail without demeaning their adversary. He should be demanding and controlling, but in a positive way.

Unfortunately, confrontation is usually provoked because large acquirers usually demand more than they have a reasonable right to expect. However, if you are knowledgeable about your situation, realistic in your expectations and stand your ground, then you should be able to sustain your position.

2. Know your goal and always pursue it
You must stay focused on achieving the primary objectives of your negotiating strategy. Don’t become obsessed with secondary issues. Many negotiators have failed because they became obsessed with winning a specific battle. To achieve the ultimate success, your purpose must remain single-minded to achieve your primary goal. Don’t worry about winning every battle; concentrate on winning the war.

3. Understand price and credibility
You must know the future potential that your company will provide an acquirer and the future vulnerabilities of your business niche. You should be aware of all major issues impacting the acquisition. You must understand how the business foundation, the major issues, and your company’s future translate to an aggressive, premium market price.

You must be able to intelligently answer the acquirer’s questions about your company and its future prospects. The ability to do this will portray your total command of the situation and will establish credibility with the acquirer.

Before entering negotiations, define a realistic, but aggressive expected transaction price. An acceptable, bottom-line price should also be determined. After these have been established, an asking price can be set.

Once your pricing expectations have been established, a deal should not be transacted until this price is obtained. If the deal does not evolve as quickly as you like, be patient. In certain situations, deals only happen when they are ready to happen and acquirers only move when they are ready to move.

4. Obtain and maintain control
From the first meeting, both parties are trying to obtain control and dominance of the negotiations. The establishment of control will accrue to the party that has mastered the complex psychological factors underlying the negotiation of an acquisition. The party that initially establishes control gets momentum. Once this occurs, the controlling party is generally able to obtain the majority of concessions, and usually the most important ones. In addition, once a party gets control, it is extremely difficult to reverse the roles.

5. Utilize leverage from multiple acquirers
Do not provide an acquirer an exclusive look. Your objective is to obtain offers from all potential acquirers as close together as possible. The leverage from these competing multiple offers could put you in the drivers seat. It might precipitate a bidding contest that produces a price in excess of the expected transaction price.

6. Control all acquirer contacts with vendors, customers and employees
No such contacts should be instituted until after a letter of intent has been signed. In fact, to the extent that you can reasonably limit the contact between the acquirer and vendors, customers and employees, at any time, it will be helpful in minimizing the disruption to your company.

However, if an acquirer feels these meetings are essential, you should attempt to be present at all meetings. Unless your presence in a particular meeting could reasonably be construed as an attempt to restrict the free flow of information, make it your business to be there.

When an acquirer wants to meet these parties, ascertain what they are trying to learn. You should then adequately prepare these parties for the meeting. This does not mean that you are trying to “stage manage” the meeting. Instead, it reflects your intention to preclude any parties not thoroughly familiar with all aspects of your operation from providing erroneous or misleading information.

7. Know your adversary
Obtain all the information that you can about the acquirer, its outside advisors and key executives involved in the deal. Also, attempt to determine the acquirer’s deal motives and strategic needs that can be satisfied by the acquisition.

An assessment should be made of the personalities of all participants on the acquirer’s negotiating team. You should try to determine the motivating factors of these participants — both their personal and group goals.

Unfortunately, the participants often have different personal objectives from the acquirer’s group goal. If you are unaware of the participant’s self-interests, their actions might surprise you and possibly derail a deal.
Therefore, the definition of the participant’s personal goals is of critical importance to a selling owner. You can then develop a negotiating strategy that enables you to defuse the impact of personal goals that conflict with group goals, thereby substantially increasing your likelihood of success.

8. Do not divulge unrelated or unnecessary information
Do not allow your ego to get out of control. Stick to the basic facts about your company that are of interest to the acquirer. Do not unnecessarily stress your personal accomplishments and interests or discuss your specific plans after the deal. It is a mistake to exaggerate or emphasize your importance to the company.

Remember, even if you are going to work with the acquirer for a period of time, the acquirer is most concerned about how profitable the company will be after you leave. Consequently, stick to the specific attributes of your company, its products, its market position and any other relevant information that the acquirer wants to know.

9. Be straightforward
A direct and straightforward negotiating approach is most likely to result in successfully consummating a deal. It will facilitate the development of trust and respect amongst the parties. In fact, this candid way of approaching a deal exudes the strength that you want to convey.

Game-playing during negotiations does not generally produce successful results. Games are self-perpetuating and usually expand to permeate all aspects of negotiations. They further complicate an already complex situation. The avoidance of games will significantly increase your chances for success.

In these times when business is increasingly being conducted on a global basis, it is likely that the acquirer will be a large national or multinational company. The adherence to these nine key negotiating points will level the playing field for a selling middle-market owner. His or her familiarity with the intricacies of the negotiating process and their ability to expertly execute these points will determine the likelihood of achieving success.

George Spilka is president of George Spilka and Associates, a Pittsburgh-based merger and acquisition consulting firm that specializes in middle market, closely-held corporations. They have a broad-based service that advises clients through the entire acquisition process. Currently, they are representing companies throughout the United States and Canada. These firms include a diverse group of contractors, distributors and manufacturers. Spilka can be reached by telephone at 412-486-8189, by fax at 412-486-3697, or on the Web.




POSTED ON: 10/1/2003