Negotiation and Sale of Businesses

Introduction

• Speaker: Paul Janor, investment banker with 20+ years experience
• Focus: Negotiation dynamics and skills in the sale of businesses
• Critique of existing negotiation literature (e.g., "Getting to Yes")

Importance of Negotiation

• Selling a business is not straightforward; better negotiators can maximize business value.
• Emphasis on understanding negotiation dynamics and creating a formal sell-side process.

Key Concepts in Negotiation

Valuation and Price

• Price of a business determined through negotiation, unlike fixed-price items.
• Better negotiation skills lead to higher prices and better terms.

Leverage and Power

• Essential components: leverage or power
• Types of leverage:
  • Deadlines impacting one party
  • Competition and optionality
  • Necessity or desire to sell/buy
• Perception plays a significant role in leverage.

Information Flow

• Vital for negotiation success
• Conceal seller's necessity or urgency to sell
• Gather buyer's motivation and necessity to buy

Emotional Detachment

• Emotional detachment leads to better negotiation outcomes.
• Advises against personal negotiation; suggests using an agent.

Building Credibility

• Critical for successful negotiations
• Involves demonstrating reliability and consistency

Negotiation Process

Crafting a Formal Sell-Side Process

• Process should include:
  • Information gathering
  • Protecting seller information
  • Introducing competition
  • Time management
  • Building credibility

Initial Steps

• Sign NDA, review financials, determine realistic expectations.
• Importance of aspiration in price setting and negotiations.

Process Structure

• Range from direct negotiation to controlled auction
• Modified auction often best for middle-market businesses
• Acquisition universe: identify potential buyers

Timeline and Bidding

• Set deadlines for bids to control process
• Use of indication of interest (IOI) and letters of intent (LOI)
• Conduct management meetings to build relationships and gather information

Common Mistakes in Negotiation

• Negotiating with only one buyer, leading to lack of competition and price discovery.
• Failing to establish a clear plan/strategy and set expectations.

Conclusion

• Emphasizes the complexity of selling businesses compared to other assets.
• Importance of competition and structured processes in maximizing business value.
• Final encouragement to reach out for professional advice and planning in advance for selling businesses.