While mergers and acquisitions take place between companies, it is individuals who engage in the negotiations. These individuals bring their own motives, goals, fears, and aspirations to the negotiation room, all of which impact their decision-making and ability to consummate a deal.
Though certainly not always the case, many sellers lack seasoned M&A experience, and instead, approach the sale of their business from a more personal and emotional perspective, often unable to divorce those elements from the pure business at hand.
When confronted with more seasoned M&A dealmakers, negotiations can take an interesting turn, particularly if the personal and emotional aspects are overlooked or disrespected. Doing so may come at a price and compromise a deal’s certainty.
However, taking time to understand the personal and/or emotional connections to the business being sold can be an important step in the negotiation process. Consider some of the following when approaching negotiations with individuals who are emotionally and personally vested in the business at hand, and who may not be seasoned M&A players. To be clear, one should not mistake lack of experience for a lack of leverage.
View the other side as your equal
In an article on the art of negotiation, the associate director of the Harvard Negotiation Project stated that there are five core concerns that often create disputes in negotiations: loss of autonomy, lack of appreciation, no sense of affiliation; not respecting one’s status; and having unfulfilling roles and activities. Avoiding such issues leads to much smoother negotiations.
The seller’s lack of M&A experience may cause him or her to view the more seasoned buyer as intimidating, and thus, the seller may choose not to deal with the more seasoned buyer if the perceived imbalance is thought to be daunting. Thus, instead of attempting to come across as overly experienced, and unemotional during the negotiations, the more seasoned buyer should attempt to become more relatable to the less seasoned, and emphasize their companies’ shared values and aspirations.
Understand the other side’s perspective
Viewing the whole deal from the seller’s perspective is an invaluable tool. It allows the buyer to understand the seller’s strengths and weaknesses, motives, and fears. Demonstrating such an understanding while negotiating increases the sense of familiarity. More importantly, it allows the parties to more strategically pick their battles.
While the more seasoned buyer could be approaching the deal from a purely business perspective, the seller’s sentimentality towards its company, and its lack of experience in M&A deals, provides the seller with a different perspective—one that is less purely business, and more personal and emotional. Perhaps the seller truly views its employees as family, and wants to ensure that they will be treated well. Or maybe the seller wants a guarantee that it will be able to keep its office, wine or art collection, or company car post-closing.
These may seem overly trivial in the context of the overall deal but, they may be truly important to the seller. Understanding, accepting, and respecting such matters may facilitate the consummation of a deal at no significant cost to the buyer, while allowing the seller to feel that s/he has extracted significant wins.
All negotiations involve our human biases and emotions. Understanding how these affect the parties to a transaction, and properly utilizing them, may lead to a much smoother and mutually beneficial negotiation.
The author would like to thank Ahmed Labib, Summer Student, for his assistance in preparing this legal update.
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