Acquisition Marketplace Review - The Journal of Applied M & A Theory
  • Before entering price negotiations have a “not-to-exceed” amount and a starting price in mind.
  • Build a relationship with the seller(s).
  • Learn more about the specific needs of the seller so you can use that information to add value to your offer.
  • Manage expectations and set boundaries early in the process. Flexibility is helpful along with a problem-solving approach to negotiations. However, unless you establish boundaries, the seller may push for concessions until the edge of the metaphorical envelope has been reached.
  • Adopt an educative approach when discussing price and valuation issues with the seller.
  • Be wary of auctions.
  • Don’t negotiate blindly. Plug deal price, terms and other key assumptions into your financial model to make sure the numbers meet the investment portion of your acquisition
  • Be mindful of the power of “No!” and don’t be afraid to use it to keep your company out of a bad deal.
  • Don’t underestimate your strength as a buyer and don’t fail to convey strength to the sellers and their representatives. The degree of assertiveness in negotiations is dependent upon each party’s perception of their bargaining power, a largely psychological process.

The Art of Strategic Due Diligence

In a typical transaction, buyer and seller indicate their general agreement on price, terms, deadlines and other basic conditions in a Letter of Intent or Term Sheet. A standard condition is the completion of a due diligence review to the satisfaction of the buyer. Due diligence requires disclosure by the seller and provides the buyer with an opportunity to verify the completeness, accuracy and business significance of the disclosed information.

From a legal perspective, this review is required under the doctrine of the prudent man.
In addition to the legal standard of care, due diligence is a buyer’s last opportunity to avoid the overpayment trap by thoroughly examining the reasonableness and completeness of the assumptions that are being relied upon to value and price the acquisition. In reality, due diligence is about fact-finding and truth-seeking.

Due diligence is a complex and multi-disciplined undertaking that encompasses the entirety of the acquisition target and the buyer’s plans for the company after the deal is completed. Here are several due diligence strategies you can use to avoid the overpayment trap:

  • Approach due diligence as an opportunity and spare no effort to thoroughly understand the company, how it will fit into your plans, and the best way to capture maximum value while minimizing risk.
  • Trust, but verify. Trust in your strategic vision, negotiating acumen, and valuation instincts and then take a step back to verify everything. The anticipated economic benefits rest upon myriad of assumptions. It doesn’t matter if you have a high IQ. If your assumptions are false, your ROI will suffer.
  • Adopt a cool, analytical and objective approach toward due diligence and the issues that are uncovered during the process. Every analyst has their own set of biases. It comes with being human. Avoid spin, overreaction, and the tendency to fit the findings into a preconceived picture. Use the findings to reach an informed decision as opposed to using them to rationalize a decision that has already been made.
  • Evaluate the implications of all findings that may affect price and related negotiations. Does the finding have an impact upon such critical areas as:

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