Negotiations

May 13, 2021

by a searcher in Toronto, ON, Canada

I'm curious, what are some strategies/tactics you use to negotiate purchase price of a deal?

I personally tend to use a "take it or leave it" approach with a bit of flexibility.

Let me know your thoughts, thanks
- Ty

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Reply by a searcher
from SKEMA Business School in Dubai - United Arab Emirates

Hi ^, redacted‌, you already received a lot of sensible advice above but let me articulate further what has been said. The “take it or leave it” strategy is always a bit risky when you are trying to build a relationship with a seller that will eventually become your partner post-acquisition. You might be building resentment and bad blood. Try instead to focus on rationalization and value creation. As mentioned by ^David Shackelford‌, price is only one component of negotiation. Ask as many questions as possible to find the seller’s motivations and goals. For each finding, use mirroring to acknowledge to the seller your understanding of the issue. Once you have collected this valuable information, build an offer that considers these findings while rationalizing the price you are ready to pay. It is a “give and take” strategy where you “give up” on minor issues that have a high value for the seller while you “take” on issues that are high on your priority list, such as the price. For example, you can commit to keeping all employees for 18 months (if it is your intention) which might be high on the seller priority list, while asking the seller to concede on price. It should be a careful mapping of “give and take,” ensuring a good balance of value creation between parties. This takes a lot of preparation, but you will see the value of it. There are many other aspects to consider, such as the no-deal options, deal-design barriers, understanding the real parties around the table, or the sequencing of the negotiation, to name a few. Do not hesitate to DM me if you have any questions or want to bounce some ideas.

Reply by an intermediary
from Wesleyan University in Granville, OH, USA

I agree with ^redacted‌. I work in mid-cap deals but most have a commonality with typical searchfund deals in that the sell-side party is often a private owner. It's probably not the owner's first conversation on selling, but may be the first time they really engage. They may not have any benchmarks, they may be working through emotional attachment to their 'baby', and what happens to their employees (often friends and family) are issues that take time to process. New information can cause pretty dramatic shifts in perspective and valuation expectations. Caveat #2: I've been and represented only strategic buyers - we want to add *this* company to the portfolio. The 'take it or leave it' offer can be done much more quickly which could enable a 'spray and pray' approach for a financial buyer, including searchfunders, to start those conversations. Others may be able to weigh in on potential of that high volume approach.

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