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? Here are five tips from IRP to consider:
ONE: Preparation. “I’m always surprised people lack preparation for negotiations as they should,” says Harry Tajyar, Managing Partner of IRP. “They initiate the valuation work around financial projections – but rarely consider what is actually in their counterpart’s head.”
Todd Markey, Director of Business Development of IRP, 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: Anchoring. Max Pashman, Vice president, Media Relations of IRP, 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. You’d be surprised how it becomes an effective tool.”
THREE: Tolerance. “M&A is inherently a social interaction,” says Harry. “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 principal to 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: Honesty. 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 Todd. “Never say never unless you mean it.”
FIVE: Time. 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 Max. “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.
