Michael’s M&A Playbook: Practical Tips for M&A Negotiations and Closing
After all of your work on the M&A pipeline development, ranking the targets on a scorecard, initial discussions, LOI/term sheets, and due diligence, it is time to finalize the negotiations and close the deal. Some say that negotiation is an art, but it is also a skill you can learn. There are many good books and seminars that help you with that, but here are a few tips that I found valuable and practical during my negotiations.
Recommendations for M&A Negotiations
Don't fall in love with the target - It's rule number 1 in this article and also in my top 10 M&A rules. If you fall in love with the target company, then you will overpay. Develop a data-driven approach for the value capture/investment thesis, and don't become too emotional with the decision. It's easier said than done, but keep it in mind and repeat this mantra every day during the negotiations.
Be prepared and know everything about the target, including what they want - Be fully prepared for the negotiations. Take the information from the due diligence reports, discuss the findings with the external experts, go through preparation meetings with your internal teams, and understand all key aspects of the target company. I have worked over the years with M&A deal managers who were very successful in the negotiations because they were just better prepared than the other party. The better you understand the motivations of the other party, the better for the negotiation.
Price is only one element in the negotiation - Purchase agreements can be complicated and include many essential elements. Obviously, the purchase price is important; however, there are also other aspects. To name a few, consider the currency of the payment, the requirement for escrow accounts, post-closing purchase price adjustments, conditions precedent and subsequent, the treatment of tax and legal issues after closing, taxation, and non-solicitation agreements. Ensure to evaluate the package and not only the price.
Prepare a list of problems - You need ammunition in the negotiations, and the due diligence reports are the best source to find them. Take enough time in your review meetings with your internal teams and external experts to focus on the list of issues. Go into the details of the analysis, including the $-value and qualitative impact. Assess their importance for the seller and for you. Some may have only an unfavorable effect on one party but not on the other.
Develop a list of items to give up - Negotiating is a game of give and take. When you review the due diligence findings, consider which ones are important for you and which ones you are willing to give up in the negotiations. Don't give them up too quickly, but be ready to exchange them for critical items.
Focus on the big topics - I have seen many times in negotiations that the negotiation teams get lost in the details of the purchase agreements. Prepare a list of topics and prioritize them. Some of the minor issues can be a good input for the list of things to give up during the negotiation.
Align everyone for the closing day - There is still much to organize for the closing day. Ensure you have exchanged wire transfer information with the seller and escrow agent. Sometimes, the companies are in different countries with different time zones. Part of the closing preparation is to make everyone aware of the banks' cut-off time for the transfer. Send confirmations to the deal party after wiring the money. Also, align the communication with investor relations for external publications and human resources for internal communication.
Celebrate Together and Get Ready to Kick Off the Integration
After the closing, take the time to celebrate the milestone together with the acquired company. The transaction's closing is a perfect time to continue your relationship-building between the teams of both companies. And get ready to kick off the integration and post-closing adjustments, which is the next step in an M&A process.
