Mergers and Acquisitions For Dummies (55 page)

Take it one day at a time

I often refer to the M&A process as a big roller coaster ride. One day everything goes perfectly, and you leave the office on a high from a great day of high-level accomplishment. You think you're a deal-making genius! Nothing can go wrong. Then when you go to work the next day, everything that can go wrong does.

When I have those inevitable bad days, I always remind myself that the bad day isn't as bad as it seems. I also refrain from being overly excited and optimistic on those days where everything goes perfectly.

The biggest tip I can give to anyone involved in mergers and acquisitions or considering getting into the M&A industry is the following: Don't believe your press clippings. Don't let yourself get too high on the good days and too low on the bad days. You're going to have great days; you're going to have crushing days. Tomorrow may be completely different from today.

Remember your ABNs: Always be negotiating

Okay, so “always be negotiating” doesn't roll off the tongue like Alec Baldwin's immortal “always be closing” line in
Glengarry Glen Ross,
but you get the point.

For Sellers, negotiating starts with the teaser and the offering document (see Chapters 7 and 8 for more on these elements, respectively). Buyers are negotiating from the moment they place a phone call or send an e-mail to a business owner. A wise deal-maker is always looking for an angle. You're always under the microscope.

Throughout management meetings, due diligence, contract drafting, and right up until the day the deal closes, both sides should consider themselves in full-on negotiation mode.

Using Successful Negotiating Tactics

Negotiating is not about forcing your will on the other side. That's called unconditional surrender. If the other side has other options, they're not going to agree to your stringent and unbending demands. And if they don't have other options and instead reluctantly accept your offer, you're unlikely to find you have a loyal business partner.

To make you a negotiation mogul, I provide some thoughts and tips in this section on how to negotiate with the other side if you truly desire obtaining a closed deal.

Remember, negotiating is more art than science.

While you're spending so much time dealing with the other side, get to know those folks. Draw them close. If you know the other party, his habits, and his methods of doing business, you have a far better chance of successfully negotiating a mutually beneficial deal.

The following sections outline several helpful negotiating tricks.

Say “Here's the deal that gets it done”

This line is one of my favorites because it puts a closed deal on the other side's plate; all the others have to do is agree. It's usually best served toward the end of a negotiation, after some back-and-forth. Let a few issues get settled. Let both sides compromise. Then deliver the deal that gets it done.

Pick up the phone

Pick up the phone and have a conversation, especially if the subject is delicate. The flip side to “pick up the phone” is “avoid e-mail.” E-mail is a wonderful tool, but it's a passive form of communication. A single five-minute phone call often resolves issues that otherwise would play out in five or ten (or more) e-mail exchanges.

I'm not opposed to using e-mail in M&A negotiations. In fact, e-mail can be an imperative tool because it allows you to memorialize a conversation. The trick is to know when to use e-mail. For example, I once represented a Seller in a negotiation where the Buyer wanted my client to pay for the cost of mailing catalogs (about $500,000) intended to support a marketing campaign. Those catalogs were to be mailed just before the scheduled closing. Typically in a business sale, Seller pays all expenses prior to close, and Buyer pays all expenses after.

I argued that the Buyer should pay for the catalogs because the resulting sales would benefit him, the new owner, and he finally agreed during an in-person management meeting that this solution was reasonable. I then sent him an e-mail reiterating that discussion.

A few weeks later, on the eve of closing, the Buyer suddenly informed us (rather coldly) that he refused to pay for the catalogs because expenses prior to closing are the responsibility of the Seller. The Seller would've otherwise delayed the release of the catalogs for a few days so that the expense would be incurred post-sale.

I don't know whether the Buyer forgot the conversation (and resulting e-mail) or whether he felt he had us over a barrel, but fortunately, I had the e-mail thread that showed he'd very clearly agreed to cover the cost of the catalogs. The Buyer, despite being rather irate, conceded the point and agreed to pay for the catalogs. We closed the deal a few days later.

Offer a conditional if-then agreement

I always refrain from offering up a concession without getting something else in return. As you try to work out a deal with the other side, don't simply offer a concession (or ask for one without expecting to give something back).

Instead, say, “If you can agree to A, B, C, and D, then we can agree to X, Y, and Z.” If the other side balks at your idea, you've not conceded a point; you've simply offered an idea. Because the idea was rejected, any conceded points are therefore removed from the discussion. This bundle approach often works very well when coupled with saying, “Here's the deal that gets it done.”

If the other side offers a concession without asking for anything in return, accept immediately and move on to the next point.

Understand that the first who speaks loses

Here's another insight I learned years ago at a long-forgotten job: The first person who speaks loses. Say your peace, make your point, and then shut up. We humans tend to have an innate need to fill the void of silence because it makes us uncomfortable. If you can fight against the need to fill that silent void, you may be surprised at what your negotiating opponent is willing to concede.

Don't be afraid to haggle

Haggling,
or the incessant back-and-forth volleying of offer and counteroffer, is a typical negotiating tactic. You say 50, I say 30; let's agree to meet at 40. Is haggling permissible? Of course! It's a natural part of any negotiation.

Although you should pad offers to allow for some wiggle room, haggling can get tiring. In my opinion, it quickly becomes a waste of time. Padding an offer or counteroffer can help, but structuring a deal that you can support is the most important aspect of getting a deal done.

Although I don't recommend going overboard when structuring a deal or a counteroffer, don't be afraid to push the envelope. You never know whether the other side will accept your proposal unless you ask.

Don't negotiate against yourself. If you submit an offer or a counteroffer and the other side says, “Not good enough; please try again,” hold firm and tell the other side, “This is our offer.” But you can proceed to haggling if the other side gives you a counteroffer!

Beware of a bad bluff

Bluffing may be a bit Machiavellian, but it can be a useful negotiation tool. M&A negotiating often involves much of the same kind of bluffing (and knowing when the other side is bluffing) as is found in poker.

Bluffing most often happens when one side really wants to do a deal but feigns indifference in the hopes that the other side comes to the table with a better offer. I don't recommend this strategy. If you need to do a deal, you're better served if you're open and honest with the other side.

And in no way do I ever suggest that an M&A participant should lie to or deceive the other side in regards to material information. Saying you're not interested in a deal when you really are is one thing; falsifying financial records is another.

If you're going to bluff, keep the following points in mind:

Sell it!
Speak confidently, get to the point, don't oversell, and don't appear rushed or in need. The idea is to come across as nonchalant.