Good Faith Negotiations in M&A Transactions

Apr 19, 2022

One of the early negotiation principles taught to me by the founder of IBA, G.William Ososke, when I started as a business broker with the firm in 1994 was you have two ears and one mouth, you should listen twice as much as you talk in a meeting. This guidance has served me well in my over twenty-seven years with the firm and the successful facilitation of in excess of three hundred transactions as a mergers and acquisitions intermediary.  This concept also applies to the parties involved in a potential transaction.  I can’t tell you how many times I have witnessed a buyer rubbing the seller the wrong way and having a detrimental impact on future negotiations at a first meeting by dominating the early exchange with braggadocious behavior.  Similarly, a seller who only wants to talk about themselves and their company that does not take a genuine interest in a buyer who has committed time to meet with them and learn about the business is missing an opportunity to develop positive rapport for future negotiations and assess a potential successor for executive leadership.  An experienced, highly skilled business broker will create an environment for a buyer and seller to exchange information and negotiate in good faith.  Elements present in a quality environment for discussion/negotiations include a place where communication is confidential, a foundation of knowledge exists for both parties prior to engagement, and expert facilitation of conversation occurs to insure salient points are covered and dialog does not stall prematurely.

A productive environment for communication created the next step is to build vehicles for good faith negotiation.  Communication can occur in person, by telephone/Zoom, text, email, or legally drafted documents.  Each of these communication techniques has a time & place in dealmaking by a professional negotiator.  Selection of the right technique can be the difference between getting parties to “yes’ and sending a deal on a tangent where it “crashes and burns” or needs triage to recover.  Imagine a text or email during legal documentation negotiations that says, the seller will only be available post transaction for sixty days onsite.  This communication could create fear or concern with a buyer who is taking over ownership of a business.  However, compare this with a telephone call from the broker to the buyer explaining that the seller is only comfortable committing legally to sixty days for onsite training post sale because they are going to support a child in cancer treatment in another state, but would be available virtually as long as needed because they deeply care about their employees and customers, and would be happy to serve as a consultant in person upon their return.  Most problems have solutions.  It is often simply a matter of open and honest communication and having a facilitator with relevant knowledge and experience to find a solution.

My favorite part of a purchase and sale transaction involving a privately held company or family business is when the parties reach agreement on a letter of intent.  If I have done my job as a professional intermediary, the agreement has been reached in an environment of full disclosure in a negotiation facilitated employing best practices.  The reason I value this collaborative achievement by the buyer and seller is because, in an overwhelming number of IBA facilitated transactions, the agreement puts the issue of price to bed for the deal, provided due diligence verifies the information used to justify the company value on both sides of the table.  Price is the most confrontational element between a buyer and seller in any transaction as one party has a vested interest in getting the most possible while the other wants the lowest value achievable.  Once hands are shaken on price in a M&A transaction, then the parties are working collaboratively to achieve a common goal.  Confrontation may exist on legal, accounting, or finance issues, but provided parties negotiate in good faith and are empathetic to the other side of the transaction turbulence on the final descent to closing should be able to be overcome.

Expert Note:  The foundational element of most successful sales of businesses starts with the proper valuation of the company prior to going to market. The best business brokers have the ability to accurately value companies and justify the value to sellers, buyers, accountants, CFO’s, banks, and investors.  Again, the most confrontational point in negotiation is over price.  If parties start on the same page in negotiations on that deal element, all other transaction terms commonly fall into place. 

The purchase and sale of a privately held company or family business is a sophisticated, nuanced transaction requiring significant knowledge, experience, and skill.  Similar to an airplane flight to a tropical destination where it is prudent to have a seasoned pilot who has put together a flight plan and flown the route before to the location, the presence of a professional intermediary with knowledge and experience related to the industry of the business being sold is prudent.  If you are considering the sale of a Pacific Northwest business in 2022 and seek assistance from a business broker with a reputation for facilitating good faith negotiations and employing best practices, the pilots in IBA’s squadron of aces would welcome the opportunity to interview for the job.  We have a long history of selling companies within 10% of their “go to market” value and only seek to be paid after successfully flying our missions.

IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, and mergers & acquisitions community on subjects relevant to the purchase & sale of privately held companies and family owned businesses.  IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.