If You Draw A Line In The Sand Be Prepared To Lose A Deal

In every potential business sale, sellers and buyers always have an issue or two that for them is a “deal-breaker”. Sometimes, these issues are not that significant or even logical to the opposite party, yet, they can easily become deal killers.

 

However, most of the time, these are serious and understandable matters and critically important to one of the parties. The danger however; is when they are positioned as an “all or nothing” scenario. When one of the parties suggests it’s a deal-breaker, the problem is two-fold:

First, if the other party cannot make any accommodation, the deal may die. Second, if the initial party backs down from their position, they will set the stage to not be taken seriously on any other matter they deem to be imperative to the deal and open themselves up to negotiation on every point.

I firmly believe that every situation can be resolved unless there is a third-party preventing it (i.e. a landlord who no matter what will not assign the lease). If the matter at hand is controlled by the buyer or seller, there is always a solution. It is imperative if one side deems it to be important; the other side must make it important as well.

It is usually best to talk through these points and the most effective tactic to diffuse someone who takes a hard stance is to not immediately rebut it with an equally rigid and opposing position (i.e. “No way, not going to happen, I’ll never agree to that” etc.). Sometimes, it is best to set these matters aside and gain agreement on other deal points and then revisit it. When I am involved with a situation like this and I cannot agree to what the other party wants, I simply state: “I don’t think I can agree to it, but, I know it is important to you and it is therefore important to me for us to try and find a way to satisfy your core concern and keep our deal moving forward.”

Often there is an underlying reason for the problem and it is that below the surface issue which must be addressed.

For example, many sellers will tell buyers: “You cannot meet any of the employees before you buy the business.” The issue here of course is the seller is worried that his employees will panic and sellers usually state: “They will think they will lose their jobs so they will all start to look for another position. If the deal doesn’t go through, I’m screwed. And, if the sale doesn’t go through, they will all be nervous thinking the business can be sold any time.” (By the way, the complete opposite is usually the case. Employees jobs are often safest after a sale because the new owner needs them to help in the transition and the buyer will usually put more value on the employee who they don’t know than the seller who already knows their shortcomings).

The buyer truly needs to determine whether meeting the employees pre-sale is even necessary. Obviously, if we are talking about low-level employees who can easily be replaced, it is generally not necessary. But, if there are truly key employees critical to the business, then a buyer has to meet them before they invest their money and future.

The most common work around to this is for a buyer to say that they will satisfy every other condition of the deal first and once they confirm to the seller that they are 100% going through with the deal based upon all other conditions, only then will they need to meet with the employees as a final contingency. A buyer should also be prepared to tell the seller what he plans to discuss with the employees which can further extinguish the seller’s concerns.

The bottom line here is to remain focused on getting to the finish line. Think very hard about ever drawing a line in the sand because it is very hard to undo that position. Buyers and sellers must both understand that there are many key issues that arise during the business sale process where the parties will have completely opposite positions. Adopt the philosophy that every problem has a solution and instead of focusing on deal-breakers, work towards being a deal-maker.

One Response to “If You Draw A Line In The Sand Be Prepared To Lose A Deal”

  1. Robert Kemp December 19, 2012 at 5:45 pm #

    I came across this article when researching material for our own blog and found it very thought provoking. We face the problem of buyers, and sellers, taking intractable positions every day. A little background, we specialize in retirement sales of private companies in the UK, but the issues are much the same. We try our best to educate sellers that the more inflexible they are about elements of deal structure, valuation and due diligence access the fewer viable buyers we will find. Fewer viable offers almost always means a lower price and more risk of not selling if you choose to walk away. This such an important issue in completing a sale that we have put an article on our blog about the subject that I refer owners to as soon as we start meeting with potential buyers. It may be of interest to some of your readers so I have put a link to the article below:

    http://www.sellingprivatecompanies.co.uk/selling-a-company-negotiating-price-and-deal-structure/

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