The M&A process provides dealmakers with several opportunities to enhance acquisition value — as well as pitfalls to destroy it. What defines good targeting, negotiating, due diligence and integrating?
Our experts identified five key lessons that acquirers should bear in mind in order to make the most of their negotiations.
ONE: Be prepared. “I’m always surprised that people don’t do much real preparation work for negotiations as they should,” says Moriarty. “They do the valuation work and things around financial projections — but they rarely consider what is actually in their counterpart’s head.”
Gemello agrees, particularly when it comes to cross-border dealmaking. “Gone are the days of the imperialistic buyer that just jams something down the throat of the seller,” he says. “I spend a lot more time with my clients getting smart about the target, about how they do business, about how they will operate and behave in the negotiation, just so we can clear out as much unnecessary noise as possible.”
TWO: Anchor away. Moriarty believes that putting the question to the other side first can give a psychological advantage when discussing terms around the table. “It’s important to make the first offer,” he says. “This is a concept called anchoring. If you make the first offer, the other side will often gravitate towards it. I’ve used it myself, and seen it used against us in negotiations. I’m surprised at how it effects people and it’s a very powerful tool.”
THREE: Friend, not foe. “M&A is inherently a social interaction,” says Gemello. “You’ve got to effectively build a bridge. As the world gets smaller, successful dealmakers have to bridge the social and cultural differences between parties, and take them into account when doing a deal.” This necessity means that meeting your counterparts in person takes on paramount importance.
“The heightened era of electronic connectivity puts a premium on face-to-face meetings. You can’t substitute for time together between principals to build relationships,” he says. “It’s the principalto- principal relationship that will carry the deal to success if it’s going to happen, and the business leaders negotiating the transaction at the highest level need to have trust between them so they can efficiently work through the deal.”
FOUR: Be upfront and honest. Facing the big tasks head on first can save you time down the line. “The biggest thing for me is pinpointing where the issues are, to the extent you can sooner rather than later, and getting those items out on the table for conversation.” If you have an opportunity to do that, you can get over the big hurdles early.” When doing this, however, it is vital that dealmakers are honest and open to compromise.
“Integrity is everything,” says Drazan. “Never say never unless you mean it.”
FIVE: Time is money. If you’re able to take your time through these processes, this can help value generation greatly. “If you have time on your side, you will benefit greatly from a valuation perspective,” says Motani. “I’ve been involved in auctions and direct sales, and while auctions can accelerate the time to closing, a direct deal usually results in a more buyer friendly purchase