Written by Thierry De Poerck , Partner of ONEtoONE Corporate Finance.
At ONEtoONE Corporate Finance we have a broad knowledge of the Mergers and Acquisitions sector, as we have participated in more than 1000 mandates. If we were to provide you with one and only one advice it would be:
Hire a professional and independent advisor to care of your deal while you focus on your business.
A seasoned M&A advisor will ensure you secure optimal value for your deal promptly by avoiding the 7 most common negotiation mistakes.
1. Believe in love at first sight and immediately enter into exclusive negotiations.
One should not be mistaken. There may be interest at first sight, but love has no place in business. The counterparty might make an eye-catching offer. This approach usually has 3 goals:
- To fend off potential competitors that may have a different value proposition.
- To capture your interest and lead you to to get down to business quickly.
- To distract your attention from intangible issues.
In addition, the incentive to deal with you exclusively is frequently paired with a credible threat to walk away if you refuse to agree on an exclusivity period. Remember that if one party wants to move quickly, there are often benefits to taking things more slowly.
2. Fail to prepare before you negotiate thoroughly.
One often believes that if they have a strong opinion about what they want to get out of the deal, they are sufficiently prepared. Wise advisors do not rush into negotiations and take the necessary time to analyze multi-dimensional aspects and outcomes. Play the What if? game to eventually determine your best option to a no-deal situation (BATNA) and your walkaway point (your reservation value). Suppose you manage to assess the other party’s BATNA and reservation value. In that case, you have more rational elements at hand to make the right decision, reaching an agreement or walking away.
3. Confront rather than collaborate.
Some advisors like to consider themselves as conquerors and fear being taken advantage of or willing to push their luck as far as possible. They produce unreasonable requests combined with coercive techniques (no prisoner attitude). They focus too much on a deal closing rather than creating value from the deal, which may prove very painful later on in the process. A collaborative tactic is usually a much more effective way of negotiating. By building rapport and trust, both sides will feel more comfortable sharing their underlying interests in the negotiation. Smart advisors recognize they will more likely reach win-win solutions. Both parties create value instead of destroying it for themselves and the other party.
4. Consider a partial impasse as final.
More than enough parties find they have reached an impasse as they have disagreed on a critical issue. This could mean that valuable resources have been wasted and good opportunities missed. Logrolling might be an excellent technique to move out of the impasse by making beneficial trades across issues. This requires you as a advisor to know your priorities and the preferences of the other side. Smart advisors may identify negotiation opportunities when others see no room for discussion.
5. Ignore the importance of cognitive shortcuts we fall back on.
Most people entering into a negotiation process are either ignorant of the cognitive shortcuts or tend to forget about them, particularly when they come unprepared to the table. What does it concretely mean? We tend to be overconfident of our odds of getting our way. We pay more attention to vivid information (the transaction price) than to less flashy information (the execution terms) that might eventually have a significant impact on the transaction value. We unconsciously create a mental short of denying an actual situation. One should be conscious of the pernicious effect of these biases on ourselves and the other side, especially when negotiating from a position of weakness: plan and prepare.
6. Deny ethical shortcuts.
One should also be aware that most people are willing to cheat now and then in negotiation when there is a financial incentive to do so and believe they will not be caught. They find many ways to rationalize their behaviour:
- They somehow feel they deserve it.
- They correct what is perceived as an unstable situation ethical shortcut.
- They believe the other party will not feel the loss or simply deny having done anything wrong.
Beware that seemingly minor infraction of the moral code established between the two negotiating parties might be broken. The deal may be terminated, and the upset party might not let you off the hook.
7. Let our emotions have the upper hand.
We do not want mental shortcuts nor emotions to get the best of us and cripple our odds for a successful outcome. Emotions should not be eradicated because they may act as an efficient warning signal and provide us with valuable information about how the negotiation is going. But they should be controlled as they are prone to lead us to negotiation mistakes. Experienced advisors will beware of strong emotions; for instance, anger can lead to risky choices, sadness to overpay, temper to miss a good deal. When needed, they will break for everyone to cool down and ensure concerns are being aired before the negotiations resume. Professional advisors frequently act as minesweepers to avoid a good deal derail for a wrong reason.
Our company, ONEtoONE Corporate Finance, is specialized in international middle-market M&A advisory. We are continuously focusing on improving the techniques to achieve the best possible price for our clients, and we also advise on acquisitions, strategic planning and valuation. We are pleased to give our opinion about company valuation or other aspects of a possible corporate operation. If you need an advisor while buying or selling a company,