Selling a Privately Owned Business – Briefing 11 – Negotiations and Offers
Potential buyers will all have differing circumstances and will take differing views on your business. Your contact with buyers will progress from exploratory discussions, through serious interest to negotiating a deal and agreeing an offer.
It’s essential in evaluating any offer to determine the true value of each element, making adequate allowance for risk. This process will gradually whittle down offers to the one which ultimately meets your prime objectives as vendor.
Whilst important, price is not your only concern. Other terms of an offer, such as the structure, your ongoing involvement, and other elements will also be important in ultimately choosing the best offer for you.
Here are ten tips about discussing with buyers and negotiating offers for your business.
1. It’s vital for you as vendor to understand each buyer’s perspective and what they are seeking to achieve from the deal. Acquisitions are often driven by emotional as well as strategic or financial reasons, and understanding these is key to negotiating the best deal.
2. The manner in which you discuss any points with buyers is also important to progressing serious interest. You need to be open, but firm, and be prepared for key questions so that you present your business positively. Experience shows that buyers are often driven by the “feel” of a deal as well as factual matters.
3. Ultimately what’s important to each buyer are the benefits they will derive from the acquisition, and it is therefore important to try and identify these when discussing with buyers. Operational and financial benefits from cost savings or revenue enhancements can be factored into the value of a business. Buyers will generally insist that future synergies are their reward for the risk in acquiring but in a competitive situation buyers may need to share a proportion of that future value to secure the deal.
4. Frequent and open communication between all parties, including advisors and lawyers, is always important. Efficiency in providing information to potential buyers is also crucial and generates a good feel for the buyer.
5. Once a deal is on the table, it should be progressed as quickly as possible and proactively to agreement. Lengthy negotiation periods and endless tooing and frooing are unhelpful in concluding successfully.
6. For you as vendor, deliverability of an offer is of paramount importance. By this stage you and your advisors will have thoroughly vetted each buyer and should have received confirmation of their financial ability to complete. Undue reliance on funding for the acquisition can be a key factor in selecting the eventual purchaser.
7. Negotiating is about “give and take”. Be willing to make concessions but always try to barter these for something in return. Don’t give them away cheaply, and try to trade small concessions rather than one large one.
8. There will always be differences in price expectations and value. These are not necessarily terminal and can often be bridged in a number of ways, mainly through deal structure. The structure of a deal is limited only by your flexibility as vendor, and the more you can exercise the greater the chance of success.
9. The ability to listen properly and assess what a buyer is saying is crucial to good negotiating, as is observing body language. This is precisely where working with an advisor can be important, not least because two pairs of ears are normally better than one. Focusing on hearing exactly what the buyer is saying, what this actually means and what really lies behind the discussion is crucial.
10. In summary, be prepared, be professional, be positive and engender a really good feel about your business. Always consider the other side’s viewpoint but never lose sight of your original objectives.
When you have successfully negotiated to an acceptable deal with that right buyer, to ensure full clarity and no misunderstandings that should immediately be confirmed in writing, usually in a Heads of Agreement (Heads of Terms). This next stage will be covered in a following Blog.
28 July 2017