Negotiating an Acquisition

Your SME has the potential to become a highly successful business given the right idea, product, or service is employed along with an amazing staff to help it grow. However, you can do more for yourself in the business world should the opportunity arise. Business acquisitions have become one of the largest trends in recent years. With the fact that business failure rates are at an all time high, many successful business owners are merging with those that may be struggling to help grow the empire through business acquisitions.

Acquisitions can happen for a number of different reasons. Some business owners see the potential of acquisitions as a means of bringing two halves of a whole together when companies offer similar products that work well together. There are acquisitions based on success of both parties as well as a way to help boost the success of one that may be in financial trouble. Whatever the reason for an acquisition, they can be highly successful when negotiated and utilized correctly. Here are our best tips for negotiating an acquisition.

Make an Initial Offer

Naturally, once you have decided to negotiate an acquisition, you have a target business in mind. You should also ensure you have enough capital and income to acquire the new business. However, if you have all of that in order, you need to make your initial offer.

Negotiating an acquisition can be a tricky entity, but it is important to remember that the initial meeting with that company can weigh substantially on their desire to negotiate with you further. Just like a first impression gives an individual a lasting perspective from their first meeting, that initial offer carries the same weight within the business.

Your initial offer needs to be strategic. Never go in with your initial offer matching the exact financial scope of the business you wish to acquire. Generally speaking, you want to initially offer between 75% and 90% of the perceived value of any acquisition. Anything less than that would likely be insulting to the company and they will know the value of their company, so it pays for any acquiring business to respect that fact by not low balling.

Maintain Diplomacy at All Times

Once you have made an excellent first impression, practice diplomacy at all times. Maintaining a positive tone throughout the experience even if the negotiations seem as though they are falling apart is vital. Providing the perception of ongoing confidence in the deal will work in your advantage as the leaders of your company set for acquisition will begin to see you as an authority figure and not someone that falls apart easily under pressure. This is the stage where you build their confidence in your skills and trust is built or destroyed.

Negotiation of Terms

After your initial, hopefully positive, impression has been made, you need to set the terms for negotiation. You should already know what you want and this is not merely the company, but the name, any accompanying assets, and anything else that goes along with the business. Additionally, you will want to put the owner’s mind at ease by letting them know your full intentions. They will want to know what you want to do with the business once it is acquired and often what intentions you have for the current employees of the business. Acquisitions can be difficult, but business owners understand that sometimes it is essential to sell to a larger entity to make the company truly successful. However, they will want to sell to a company with similar values and growth goals.

Keep Legalities in Mind

Sometimes, an acquiring business can go into an acquisition a bit naïve. The company they want to acquire may have underlying legalities that if go unnoticed can lead to a very bad deal. Not all companies own the equipment of even products they produce and what looks like a stand alone business, could be tied to a mountain of legalities that make it a negative deal. Check out each copyright associated with the business and a litigation search can help as well. At this point, you may also want to create a list of contractors and employees associated with the business to ensure proper ownership is maintained by the company and not someone else.

Work Our Personal Issues without Pressure

Negotiating an acquisition can be tricky business. What looks great on paper may not work out to a good deal in reality and personal feelings can sometimes put the brakes on the deal as well. You must remember that emotions can run very high when an owner desires to hold on to their dream of owning their business. Some people can even see an acquisition as a complete failure rather than in a positive light for growth. If negotiations become a little tense and you find that one or more of company figure heads is letting their emotions get the better of them. Take breaks and give time for proper processing without pressure. That seemingly dead time, will pay off in the end.

Know Who Intends on Staying with the Company

Loyal employees will be your best asset in the new company and these people deserve information. An employee, even a fiercely loyal one, that believes their livelihood is at stake, has the potential to jump ship should a better opportunity come along. Throughout the negotiation process, the acquiring company should be a noted figure around the company and get to know their potential new employees. It will set the employee’s mind at ease and help them remain loyal to the company.

Lawyer Business

Lawyers will have to be involved in the final process of signing papers for the acquisition and sometimes, lawyers can try to renegotiate terms of the acquisition. It is important to stand your ground in this instance and not allow your lawyer or theirs to take completely over. Keep everything that was verbally agreed upon in the contract without adding additions if possible. This will maintain order and keep tensions down at this very important part of the process.

Above all, negotiating an acquisition is about respect of the company you are trying to acquire and all they have already accomplished. It is also important to keep loyalties and preferences in mind as well. Maintain communication and take breaks from negotiations when necessary. If you show respect for the company and all their hold dear, they are more likely to agree to terms and negotiate in a more positive manner.

Platinum Business Growth are expert M&A & Corporate Fundraising Advisors.

We would love have a chat to see how we can add value to your M&A or fundraising projects for lenders/investors or for borrowers/investees, please reach out to us here if you'd like to do.

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