Sadly, brinksmanship is rife in corporate finance. It’s one of its least attractive traits.
After 12 months of negotiation, the vendor has, in his mind, conceded on numerous points. The tabled consideration, as drawn up in the Heads of Terms and later in the Sale and Purchase Agreement, is, to him, an absolute number. There’s no room for price negotiation.
But in a market where the buyer with cash has all the cards, a “nothing doing” attitude is not an option for a keen vendor. When you are a few hours from actually transferring funds, most vendors are past the point of no return – and most buyers are all too aware of this.
Of course, no-one can be made to sell their business if they don’t want to, but when emotions are running high and tempers are frazzled, things tend to go one of two ways: either the deal falls apart (and often for a depressing amount, while teddies are thrown across the room by all parties), or the chip is taken with a heavy heart and the buyers celebrate a lukewarm victory.
The trouble with the former is substantial costs have been incurred, which now have to be written off; incumbent staff need placating; and, if there is a need or real desire to sell, everything moves back to square one.
With the latter, the sour feeling of being cheated at the final hurdle means any co-operation required post-deal will be less than satisfactory for all parties and may create even more problems and costs. Ultimately, no-one really wins.
Short-term gain seems to cause only long-term pain, yet still this practice persists.
It is, of course, all too easy to say don’t give in, but eleventh-hour price changes are very difficult to manage – both practically and emotionally. Here are a few tips from the battle-wise:
1) Don’t send emotive emails written in temper or distress. They will never help. Write them, by all means, but send them to your trash folder
2) Call a conference meeting, preferably a face-to-face one with your advisers and agree a strategy. Let your advisers take the lead in the process (clearly under your instruction of parameters) – this is what you are paying them for
3) Call a conference meeting, again face-to-face, with the other side and their advisers. Before the meeting, ask for a full and comprehensive rationale behind the price change – where has it come from? Why has it been brought up so late?
4) Listen to every point. Don’t interrupt. Don’t defend or justify. Make sure all issues are aired in totality
5) Take time out with your team and ask the following: a) Are they justifiable and honest points? b) Is this change fair and reasonable? c) Do you have any valid and robust counter argument? d) Are you prepared to concede any, all or none of the points? List out, in order, immoveable and concessions and calculate the cost of concessions e) Consider the ramifications of starting again if you concede any or all including: cost of the deal; legal issues; practicalities; people; premises; banking
6) Write down your final number
7) Ask your advisers if there is another way around the concessions by, for example, extending an earn out; extending a warranty; increasing an amount in escrow. They have been here before so they should have plenty of ideas
8) Send your advisers back into the meeting armed with your agreed process. They should then take over the negotiations on your behalf.
As professionals, they should know it’s essential to tie down any agreement now as quickly as possible and perhaps ask for compensation provisions if any more changes are made.
Whatever happens, though, remember: no deal is done until the money goes around. Everything is changeable – so keep calm and carry on.
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