This post is part of a series, and in it I will cover more about the Valuation and negotiation stage.
Negotiation in an M&A requires attention to certain aspects to be successful.
Some tips include:
Preparation: it is relevant that the teams involved have sufficient financial and operational information about the companies concerned.
Expectation alignment: it is necessary for the expectations of both companies to be clear before the negotiation begins.
Effective communication: clear and objective communication between the companies is important to address all relevant issues. Always be constructive and less argumentative.
Appropriate valuation: the valuation of the target company must take into account financial factors, growth, and synergies. There is no reason to force assumptions or other means of obtaining a valuation that is far too high or far too low.
Flexibility: it is necessary to be willing to negotiate and adapt throughout the process, since unexpected situations may arise.
Risk consideration: it is essential to assess and manage the risks involved in the M&A, including financial, regulatory, and operational risks.
Specialized advisory: it is fundamental to have the support of M&A specialists, such as lawyers, financial advisors, and accountants, to properly handle legal and financial matters.
When preparing for a negotiation, it is important to discuss possibilities in advance within the negotiating team, defining clear roles for each member, and to already consider some negotiation techniques, such as:
MACNA (minimum acceptable to reach a negotiated agreement)
The stage where deal breakers or conditions that are unacceptable under any circumstances are established.
ZOPA (zone of possible agreement)
Defines the possible range of negotiation, and
BATNA (best alternative to a negotiated agreement)
Created at Harvard. It analyzes alternatives with the aim of finding the one that provides a win-win outcome for all parties involved.
These techniques help identify objectives, values, and limits, and to reach a satisfactory agreement for both companies.
In addition, during the negotiation it is important to define certain key aspects, such as Tag Along, Drag Along, Call option and Put option.
These are options present in many M&As and their purpose is to protect the interests of the parties involved.
Tag Along is an option that allows minority shareholders of the acquired company to participate in the sale if the majority of the company's shareholders have decided to sell it. This ensures that all shareholders have the opportunity to benefit from the sale of the company if they wish to do so.
Drag Along is an option that allows the majority shareholders of the company to sell their shares, regardless of the minority shareholders' wishes. This is useful in situations where the majority of shareholders are motivated to sell their stake in the company, but one or more minority shareholders are not interested.
Call option is an option that allows the acquiring company to purchase the shares of the acquired company at a previously defined price, within a specific period. This allows the acquirer to secure the acquisition of the company, even if financial conditions change.
Put option is an option that allows the selling company to sell the company's shares at a previously defined price, within a specific period. This allows the seller to have a secure exit if the company does not perform as expected.
These options help protect the interests of the parties involved and ensure that the transaction is successful throughout the partners' journey. It is very important that the negotiating teams understand the implications of each of these options and that they are included in the agreement in an appropriate manner.
Listed here are some important tips to ensure that the M&A is successful in the negotiation phase, but personal characteristics among those involved, such as patience, persistence, flexibility, and professionalism, are also essential to success in this process.
