Insights on Negotiation for M&A

Oct 19, 2024

Lecture Notes: Negotiation and Sell-Side M&A Process

Speaker: Paul Giannamore - Investment Banker

Introduction to Negotiation in Business Sales

  • Paul Giannamore has 20+ years of experience in business sales negotiation.
  • Critiques negotiation literature like "Getting to Yes" and "Never Split the Difference" as too cooperative for financial negotiations.
  • Business sale negotiation differs from cooperative problem-solving; it requires maximizing business value.

Key Dynamics and Skills for Negotiating Business Sales

  • Leverage and Power: Critical for sell-side negotiations.

    • Use deadlines to gain leverage.
    • Optionality and competition increase leverage.

  • Valuation and Price: No fixed price; achieved through negotiation.

Components of Leverage

  • Time: Deadlines can impact negotiation outcomes.
  • Optionality/Competition: More buyers increase potential sale price.
  • Necessity/Desire: Disparity in desire between buyer and seller affects leverage.

Information Handling in Negotiations

  • Conceal seller's necessity to sell.
  • Gather information about the buyer's needs and motivations.

Judgment in Negotiations

  • Emotional detachment is crucial.
  • Decision makers should remain in the background.

Building Credibility

  • Essential for negotiating; ensures the other side believes claims and offers.

Negotiation as a Process

  • Process control can maximize business value.
  • Sell-Side Process: Understanding buyer motivations and concealing seller vulnerabilities.
  • Introducing Competition: Drives up price through buyer competition.

Steps in a Formal Sell-Side Process

  1. Valuation Assessment: Realistic vs. aspirational pricing.
  2. Crafting the Process: Define rules and timeline, build an acquisition universe.
  3. Information Memo (SIM): Key document for potential buyers.
  4. Deadline Setting: Control process and maintain leverage.
  5. Indication of Interest (IOI): Initial bid from buyers.
  6. Management Meetings: Sellers should gather information and build relationships with buyers.
  7. Revised Bidding Rounds: Continue until reaching best terms.

Mistakes and Challenges

  • Direct Negotiation with One Buyer: Leads to low prices and lost opportunities.
  • Lack of Competition: Reduces seller leverage.
  • Failure to Set Realistic Expectations: Causes regret post-sale.

Final Thoughts

  • Credibility and process control are key.
  • Competitive bidding raises business value.
  • Potomac excels in executing formal sell-side processes.

Conclusion

  • Paul Giannamore shares insights on maximizing business sale value through structured negotiation processes.