Publications & Resources

May/June 2008
Focus: Mergers & Acquisitions

Negotiating the Deal – Price Isn’t Everything

By Michael Iannaccone

Sure, everyone wants to get the best possible price during an acquisition. But focusing too much on price could end up hurting you. Why? Because there are many intangibles that motivate buyers and sellers. We’ve all read the best-selling book, Getting to Yes, but when face-to-face with a deadline and uncertainty, many financial institutions forget the lessons from negotiation theory.

We’re here to reinforce the principles of collaborative negotiating and to suggest that leading your negotiating partner to openness and creative thinking will absolutely unlock value for all parties. That’s because successful transactions create deals that satisfy a broad range of interests beyond concerns of price.

People will not negotiate with you unless they fear you or they believe you can assist them achieve their objectives. We call the latter collaborative negotiating. And it begins by asking four questions before entering negotiations.

  1. What do you want?
  2. What do they want?
  3. Why should they negotiate with you?
  4. What are your best alternatives?

After answering those four basic questions, you’ll need to dig deeper about motivation.  One of the most important tools in skilled negotiation is also the most difficult to understand and execute. That tool is recognizing the difference between positions and interests. Position is usually a narrow stance, such as a specific price, but interest is much broader because it represents the motivation behind the position. When people bargain from position, they easily get locked into a tiresome battle of haggling, and they never find creative solutions that satisfy their real interests.

I offer the following client story as an example. A medium-sized, family-owned bank was looking for a way to exit the industry. With neither a realistic succession plan nor an interested buyer in sight, the institution asked us to help. By focusing on what the seller really wanted – an ongoing career and relationship, we completed a deal that included an employment contract and an opportunity to facilitate other M&A transactions for the new parent company.

The second most important negotiating tool is realizing that there are different negotiating cultures. We’ve listed four quick questions to ask about culture. By realizing cultural differences, you’ll have a better grasp of what will drive the negotiations.

  1. What’s the anticipated rhythm of the discussions? Any negotiation is a process that takes time, but some institutions are speedy negotiators.

  2. What are the dynamics of the relationship? Will the discussion be CEO to CEO or will a team of key players be involved?

  3. How does the key negotiator or team absorb information? Do they want detailed presentations or bullet points with key highlights?

  4. What is the decision-making style? Are they flexible and willing to accept last-minute changes or more deliberate, requiring each decision to go through a specific process?

By the time you are ready to meet, you should have gathered a significant amount of information. Still, the meetings also will serve as opportunities to learn more.

For the first meeting, pick a location that makes your target feel comfortable. Be friendly and take time to build a personal rapport. Understand your partner’s history, vision, philosophy and the communities they serve. Have an intermediary keep tract of verbal agreements and send a written summary to both sides (keeping the lawyers in the loop), so when you move to draft the definitive agreement, everyone will have a framework. For the second meeting, make sure you meet all the principals and find ways to determine whether they share the same personal philosophies as those you have already met. Avoid putting numbers down too soon or that will trigger haggling. For the third meeting, continue to dig for what’s holding them back and what could propel them forward.  Focus on thinking about how a partnership with you would accomplish those objectives.

Once a deal has been struck, the art of collaborative negotiation should always morph into the art of partnership. Alliances that fail do so because the leaders who negotiated the deal never implemented the vision. This is why the person who will implement the transaction should be in involved in the negotiations.  In addition, both institutions should:

  • Develop best practices for managers.
  • Create easy-to-understand charts that outline responsibilities.
  • Make sure that any implemented changes always enhance the customer experience.
  • Develop a protocol for all joint decision-making.
  • Audit the new relationship and revise if necessary.

Keeping the “softer” side of any negotiation in mind, along with taking steps to make sure the execution is done well, will create a smooth process that can be successfully replicated time and time again.

Michael Iannaccone is managing director, merchant banking for Performance Trust Capital Partners in Chicago. He can be reached at 312-521-1150 or miannaccone@performancetrust.com.

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