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How to Negotiate in a Business Acquisition or Merger

Jeff Cochran

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When one business acquires or merges with another, a negotiation must first take place. Both parties involved are seeking the most beneficial situation for themselves. If you and the other party are so diametrically opposed, then, how can you ensure that you get as much benefit from the deal as possible without souring it entirely? Perhaps a bit of negotiation training is in order. Let’s take a quick look at some of the most important steps to keep in mind as you proceed with the negotiation.

Preparation and Research

Anyone with even the most cursory corporate sales training can tell you that a negotiation begins long before the two entities involved meet to discuss terms. If you don’t know where the other party is coming from, or even where you are coming from, then your position is already weak. What price point does the other party expect? What price point are you hoping for? What is your walk-away price? Why is either party interested in this merger or acquisition in the first place? What concessions are you willing to make to ensure the deal goes through? Once you have answered the important questions like these, then it’s time to begin negotiations.

As you go into negotiations, there are several strategies to keep in mind:

  1. It’s okay to make the first offer—in fact, it’s often advisable

When beginning a negotiation, many people are afraid to make the first offer. If the offer is too far in one direction, they risk not getting the full potential value out of the deal; too far in the other direction, and there’s a risk that the other party may just walk away. Several studies have shown, however, that the first price laid out becomes a sort of anchor to which all subsequent offers are tied. This is especially true if you have done your research and are very precise when you name your price. If you have more information than the other party, then you can find that sweet spot with your first offer and place yourself in a favorable position for the rest of the negotiation. It’s important to note that it is not always advisable to make the first offer. Try to avoid making the first offer if you find yourself in a situation where you are less prepared or unsure of the market.         

  1. Remember that there is more to the negotiation than price

 Price is very important when negotiating an acquisition or merger, but it’s not the only factor to take into account. The terms of the deal are vital as well. Are there protections in place for the buyer if major problems come up within a certain time of the transaction? In the case of a merger, how much control will be granted to each party? Will members of the current team remain in place, or will the old guard step down? Keep an eye out for what the other side wants to get out of this negotiation, as they may be willing to make other concessions in order to achieve that goal.

  1. Use concessions wisely

Deepak Malhotra, a professor at the Harvard Business School, notes that “Concessions are often necessary in negotiation. But . . . they often go unappreciated and unreciprocated.” If concessions are made too early, they can seem like a ploy or even go entirely unrecognized. He recommends four strategies to make certain others will acknowledge them and give their own concessions in return.

  1. Label concessions. Don’t assume that they will speak for themselves, as the other party will be motivated to overlook, ignore, or downplay them in order to avoid a need to reciprocate. Lay out the concession directly, show the costs to you, the benefits to the other side, and use it to legitimize your original offer. Use that original offer as a reference point to show exactly how much you have willingly given up.
  2. Demand and define reciprocity. While sometimes the other party will be slow to reciprocate, you can explicitly demand it. (While remaining diplomatic, of course.)
  3. Make contingent concessions. You may be willing to bend in certain areas, but only if certain conditions are met. Statements such as “We can’t budge on price under these conditions, but if you can adjust some of these requirements, we might be able to revisit price later.” Just remember to be sparing on contingent concessions, as too much reliance on them makes it more difficult to build trust, making you seem less like you are trying to find a mutually beneficial deal and more like you are simply in it for yourself.
  4. Make concessions in installments. The majority of people report that they would be happier to find two separate $10 bills on consecutive days than to find a single $20 bill once. If, over the course of the negotiation, you are willing to change your offer by a maximum of $40,000, it is more effective to offer $30,000 followed by a second swing of $10,000. While people prefer to receive bad news in one giant dump, they prefer positive news in installments to prolong that positive feeling, making them more amenable. Even though the two final offers are identical, one feels more favorable than the other.

Generally, when making concessions remember to move slowly, with pain, and small increments, while ensuring you get something in return.

While negotiation might feel like it requires years of influence training to be truly effective, in the end, it really boils down to a matter of knowing your counterpart, figuring out what they want most, knowing what you want, and determining what you are willing to give up to acquire it. If you enter the negotiation prepared, work for a genuine compromise, and stick to your guns on the issues that matter to you, then both parties can eventually hammer out a favorable deal that benefits each side.