Avoid mistakes and get more in negotiations By Scott Bushkie

I just got back from a conference where our keynote speaker was Stuart Diamond, negotiation expert and author of Getting More.  As we sat down, we expected Diamond to talk about win-win negotiations, leverage, power, and tactical strategies.  What we got instead was a discussion on emotions. According to Diamond, only eight percent of negotiation success is tied to the substance of what we’re talking about, 37 percent is tied to the process, and 55 percent is tied to the people and whether we’ve made a connection with them.  Focus on the people first and the substance last, he advised.

We certainly see that play out in mergers and acquisitions.  If you don’t approach negotiations with care, emotions will derail even the best opportunities. Negotiating Early: When buying a business, too many buyers dive into negotiations before they build rapport.  Let’s say you’re interesting in buying Acme Machining, but, like any buyer, you want a reduction in value.

What do you do? You start pointing out its flaws.  The customer list isn’t diversified, the facility needs updates, the sales system is cumbersome. But many business owners tell us that selling their company feels more like giving up a child for adoption than divesting a financial asset.  So when you criticize the business, the seller hears, “You think my baby is ugly and dumb to boot.” At the end of the day, the deal has to feel right.  We may take a hard look at the facts, but we also consult our gut.

One of the biggest reason deals don’t get done is because both sides jump straight to the financials without pausing to build that connection that’s going to be so critical in the end. Expecting Rationality:  Another mistake people make is that they believe the world is rational.  But the closer we get to the closing table, the crazier everyone gets.  It’s understandable. One side is giving up a legacy and the other side is signing guarantees and putting their business on the line.  Suddenly facts aren’t the only thing driving decisions any more.

Ultimatums:  If you have all the leverage, you can demand what you want.  But those demands come at a price. I’ve seen plenty of buyers threaten to walk if they didn’t get a particular term.  They may get a seller to agree, but after that the relationship is broken. That business owner is no longer committed to helping transition the company for success after a sale.  In other words, strong-arm tactics may win the battle, but they don’t always win the war. At the end of the day it all comes down to whether people are comfortable.  If you don’t make a connection with that person on the other side of the table, they won’t trust you and they won’t help you “get more.”

Scott Bushkie is Principal of Cornerstone Business Services. To request a book (at no cost) with advice on the exit planning process contact Scott at (888) 829.9061 or[email protected].

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A thought-leader in the industry, Scott developed the Cornerstone Process to offer investment banking M&A-level services to the lower middle market. The result is a closing ratio that’s more than double the national average.