8 Key Insights for M&A Negotiations
Although buyer and seller interests sometimes conflict, the two parties share a critical goal: getting the deal closed. Buyers want to buy...
Although buyer and seller interests sometimes conflict, the two parties share a critical goal: getting the deal closed. Buyers want to buy at the lowest price with the most favorable terms. Sellers, too, seek favorable terms but a higher price. Skilled negotiation is therefore key to a successful sale.
Expert negotiation doesn’t happen overnight. It’s a skill that demands time and practice. That’s something most parties to a deal don’t have much of. These key insights can get you up to speed quickly.
Make Strategic Concessions
Both parties have to be willing to give something in a negotiation session. To make your concessions more strategic:
- Make clear that you have given something up, then ask the other person to return the favor.
- If you don’t trust your negotiating partner, make concessions contingent on their behavior, or on their future concessions.
- Make concessions in installments. Give up two smaller sums of money rather than one larger one.
Know That First is Often Best
Many advisors believe that making the first offer puts you at a disadvantage. Sometimes, though, first is best because it can anchor the discussion, making certain terms and a specific price feel like the default.
Know Your Opposition
Every buyer is different. To get your partner to agree to a deal, you need to understand what they want. Do they need to feel important? Heard? Respected? Is money the most important consideration? Or are they seeking to realize specific synergies? Identify their long-term goals for the deal, as well as their short-term emotional needs during the negotiation session.
Beware the Sunk Cost Fallacy
You’ve already spent a lot of time and energy on this deal. So can you bear to walk away empty-handed? This is the sunk cost fallacy, which encourages people to keep putting more work in—even when something is destined to fail. Sometimes walking away is the best option.
Second-guessing the deal after it closes can actually be helpful. Looking at the process with a skeptical eye can help you do a better job next time. Don’t waste time thinking about what you did wrong. Instead, consider what else you could have done. The former leads to regret, but the latter can prepare you to be more thoughtful next time.
Do Your Research
A little preparation prepares you for whatever lies ahead. Both buyer and seller need to enter negotiations with plenty of information about one another. Identify the other party’s needs and motivations. Vet them ahead of time. Then use the information you learn to gain an advantage.