Effectively negotiating the sale of a company

By Edward J. Dawson
Chairman, President and CEO

Thousands of companies are sold each year. Sometime soon, you may be asked to participate in the negotiation of the sale of a company. Will you be ready? The following guidelines will help you negotiate more effectively not only the sale of a company, but any major negotiation.

Rule #1: Define your key negotiating objectives.

On one piece of paper, rank your key negotiating objectives, with the most important at the top of your list. For instance, some sellers primarily want a minimum amount of cash when the sale closes and, secondarily, employment agreements for key personnel must be part of the deal.

Rule #2: Execute a plan.

Develop an overall action plan that incorporates your key objectives. Then develop tactical action plans for each negotiating session that are consistent with your overall action plan.

Rule #3: Be prepared.

There is no substitute for a well-prepared negotiator who has studied the situation and prepared consistent, well organized, fact-oriented material. Start with a clearly written memorandum about the company being sold, describing its strengths, challenges, and future opportunities in detail. This document forms the basis for productive advanced negotiations.

Rule #4: Negotiate only with a qualified party.

The company/group considering the purchase should have some knowledge of the selling company’s industry and they need to be financially capable of consummating the sale. The individual or individuals conducting the negotiation should have decision-making authority to advance the negotiation’s major issues. Ideally, they would have the authority to resolve the major issues themselves.

Rule #5: Resolve the few really important issues first.

Most negotiations have a few really important issues and many minor issues. If the really important issues are resolved, all the minor issues can normally be settled quickly. Focus on the few important issues initially and then work your plan with regards to the sequence of required actions; the delivery of key messages; developing interpersonal relations; the views of influential people not present in the negotiating session; and documenting issues as they are resolved.

Rule #6: Organize simultaneous bidding.

In order to maximize the financial return to the selling shareholders, several qualified acquirers should be simultaneously bidding and negotiating. Horses run faster, and acquirers pay more, when they are competing.

Rule #7: Know the buyers’ side.

Try to determine the buyers’ positions and goals. There is an old Indian saying, “You need to walk a mile in another man’s moccasins before you can understand the man.” Determine the buyers’ key sticking points. Study their personalities and try to predict their likely behaviors.

Rule #8: Anticipate.

Consider the likely actions of the buyers and anticipate what they will say and how they will act. Prepare insightful and immediate responses to their likely actions.

Rule #9: Maintain consistency.

Volatility can be very frustrating. Determine what you really want and be consistent on the key issues throughout the negotiations. Effective negotiations normally involve agreement on a series of issues until all issues are resolved. Introducing new issues late in the discussions, or changing positions on resolved issues, can lead to a prompt termination of the negotiation.

Rule #10: Maintain emotional stability.

The best negotiators, like the best poker players, are calm. Delivering your message in a highly emotional state frequently backfires. Appear calm, even if sweat is running down your back and your heart is racing. Winners stay calm.

These 10 rules should significantly help you when you are negotiating the sale of a company or participating in any other major negotiation.