ACG National Capital
This article was contributed by Aaron Ghais, a deal lawyer at Shulman Rogers that has helped his clients buy, sell, and finance businesses, and has closed over 350 deals worth over $2.5 billion in the past 20 years.
I’ve been helping clients buy and sell businesses for over two decades now and have been involved in hundreds of negotiations. If you asked me to name, off the top of my head, two mistakes most often made by clients when negotiating a deal, here’s what I’d say they are:
1. Failing to Focus on What’s Most Important
Yes, this seems simple and maybe you’re thinking that I’m just repeating a truism, but it’s remarkable how many people try to accomplish too much, too soon, and end up with a deal that’s not as good as it could be. Negotiating a complex business transaction is oftentimes best compared to a game of “three-dimensional chess,” fraught with competing priorities, imperfect facts, messy politics, strained personal relationships, distractions, and stress, stress, stress. So much to consider, so little time, and seemingly no way to get the deal terms exactly right.
So how should you deal with this? One of my mentors and law partners, Don Rogers, answered this for me some years ago. The answer is: focus on accomplishing the two or three things that are most important, and don’t be distracted or sidetracked by secondary objectives. You may not accomplish those secondary objectives, but focusing on the primary objectives helps bring order and even simplicity to otherwise over-complex discussions and makes it more likely you’ll accomplish your primary objectives. I’ve seen this approach succeed time and again.
For example, in one recent deal, my client wanted to buy another company, the seller was willing to sell at a very favorable price, and the seller’s counsel was pressing us hard to make concessions on a dozen secondary deal points. Among other things, the seller wanted my client to change the structure of the acquisition in a way that wouldn’t be as favorable from a tax perspective; demanded that my client pay all of the transfer taxes; and insisted that neither the non-compete period, nor the duration of indemnification coverage, could last for more than one year. Had the purchase price not been so attractive, the seller’s position on these points would have been enough to make my client walk away.
In this situation, though, our focus was on two things: the low purchase price and the need for an indemnification escrow to backstop the seller’s indemnification obligation. If we could get those two things, my client could and should make concessions on the secondary points. As it turned out, she got the two big things she was looking for, avoided getting bogged down with the significant but not critical secondary objectives, and managed to reach a deal with the seller.