Most people mistakenly think that selling their company is a scientific process. While it is true that significant financial analysis is required to determine a likely acquisition price, the primary factor in generating a premium-priced, all-cash deal for the seller is controlling the psychological battlefield of negotiations. This is the “art of the deal.”

The acquisition process is a win-lose situation. If you are selling a middle market company, your primary objective is to generate the maximum attainable a premium price in an all-cash deal. If you are acquiring, your sole objective is to purchase the company at the minimum possible price.

Synergistic acquirers will be able to pay the highest premium price for the seller and still generate an adequate return on investment.Consequently, the acquirer likely will come to the transaction feeling more knowledgeable and sophisticated than the seller; believing that this gives them the ability to obtain a vastly discounted price. The seller must be aware that the the acquirer likely attempt to “steal their company.” The seller's challenge is to convert this large synergistic acquirer into one who feels forced to pay a premium price. This is a complex task requiring considerable experience, cunning and determination; however it can consistently be accomplished by those who have “mastered the game.”

Aggressively price your company
It is imperative that the seller aggressively price his or her company. To do otherwise substantially decreases the probability of attaining the maximum price. It is extremely rare that an acquirer pays more than the asking price. Consequently, be aggressive when establishing this price.

There should be a reasonable differential between the asking price and the expected transaction price. Doing so gives an overly-aggressive acquirer the opportunity to make a mistake and overpay.And it affords an acquirer the opportunity to negotiate a deal where that person feels that he or she has received reasonable concessions. This minimizes the likelihood of emotional and ego considerations interfering with the completion of the deal.

However, the differential must be reasonable. Shrewd, sophisticated acquirers usually will not spend their time and money investigating an unreasonably priced company.

A reasonable differential between the asking price and the expected transaction price is between 7 percent and 15 percent.

A deal’s critical juncture
Selling a company is not for the faint-hearted. You must be courageous and set aggressive goals. This will enable you to obtain a premium price and win the war. If a premium price is to be realized, there is usually a point during negotiations when the deal almost falls apart. However if the transaction is realistically-priced and you properly conduct negotiations, this critical juncture will not be an insurmountable obstacle.

Critical junctures can occur at any time from the letter of intent to the closing. If one occurs, it is imperative that you be patient. Don’t force things. If you are talking to the right acquirer, the person will come to you. Of course, this is contingent on the fact that your advisor has made a proper valuation of the synergy between you and the acquirer. If so, have confidence in your position and don’t weaken.

When the acquirer comes back to you, don’t overreact. Be patient and get every dollar available. Maintain your aggressiveness and punish the acquirer for his or her assertiveness. This ensures your ability to control the acquirer throughout the deal.

During this process, it is mandatory that a selling owner have an experienced acquisition advisor, who knows how to evaluate an acquirer’s needs and to accurately determine the synergies between the seller and acquirer. The acquirer’s motives must be ascertained during preliminary conversations and initial meetings. Without this knowledge the seller cannot know an acquirer’s maximum feasible acquisition price. In effect, this is the deal’s breaking point.

Once a seller has this knowledge, that person never has to worry about pushing a deal too far. Consequently, the seller can have complete confidence in the outcome despite taking strong negotiating positions.

Close quickly
When you are convinced that an acquirer’s will has been broken and that a premium price can be obtained, an extra day should never be allowed to pass before closing the transaction. If the acquirer appears to be pushing to consummate the deal quickly, cooperate in every possible way to expedite a timely closing.

In fact, if you can camouflage your own anxiety, do your own pushing for a quick closing. This is because you never know what unexpected market change or economic incident could suddenly affect your company’s worth or the seller’s interest.

George Spilka is president of Spilka and Associates, a Pittsburgh-based merger and acquisition firm that represents middle market, closely-held corporations. He can be reached at 412-486-8189.




POSTED ON: 9/1/2002