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Selling Your Company: Walk Away for the Best Deal

When you begin negotiations with a potential buyer who is interested in acquiring your company, theoretically the goal is a deal that is fair for both parties. Nonetheless, as we’ve said before, M&A deals can be competitive, messy and even contentious, with each party trying to get a deal outcome that serves their own best interest. Even if you’ve built an exceptional company and are a talented business owner with the ability to turn anything you touch into gold, buyers will often start with lowball offers and you will need to negotiate to get the outcome you want and deserve. The process isn’t always positive for both sides and it’s critical – for a number of reasons – that you’re prepared to walk away from the negotiating table if you feel what’s being proposed to you isn’t fair. 

Negotiating or Begging?

In the words of legendary sports agent Leigh Steinberg, who has negotiated more than $3 billion in sports contracts and inspired the movie, Jerry Maguire, “The first key step is introspection. You need the clearest possible view of your goals.” Prepare in advance your list of non-negotiable must-haves; your deal-breakers. While cashing in some chips and getting a fair purchase price is always a critical component of a deal, sellers also have additional motivations; for instance, preserving the culture of the firm they have built, rewarding an unfailingly loyal executive team, leasing their owned real estate to the buyer, etc. 

Discuss your goals at length with your deal professionals. Revisit your goals often. When negotiations begin and offers, counteroffers and compromises start flying, take a moment to reevaluate whether you are approaching your goals or getting perilously close to your walk away limits. You also need enough context to understand what constitutes a fair outcome based on the marketplace. Your deal professionals will both advise you on what is “market” and advocate to help you obtain it. 

It can be a tricky mindset, but you need to go into the negotiations willing to walk away. A sophisticated buyer will know whether you are willing to walk and, if not, they will get the best deal for themselves while you come up short. If you aren’t negotiating with the full faith and power of a walk away in your pocket, you’re not actually negotiating, you’re just begging. 

Foster Competition

If you’re approached by a buyer who is interested in making an offer for your company, you will likely be flattered, intrigued and maybe even ready to begin the sale process. But know this: a lack of competition makes it easier for a buyer to play by their own rules and set the terms of the deal. 

Just like the products or services you sell, the law of supply and demand applies to the sale of your business: when demand exceeds supply, the value increases. Not only does competition help keep all buyers “honest”, but it also provides you with a safety net so that you are unafraid of walking away from an unfavorable deal. You know you have alternatives.

To attract multiple offers and create a competitive environment, your investment banker should run an auction process that covers the following aspects: 

  • Scouring the market for a wide variety of buyers and buyer types – strategic and financial, geographically dispersed, international and domestic
  • Get an early read on the level of interest in the market and potential valuation for your company
  • Vet potential buyers for their appetite and ability to close a deal, and requalify them as the process moves along and the stakes get higher
  • Allow all qualified buyers to play in a defined deal process with well-communicated timelines
  • Pit the buyers against each other by requesting favorable deal terms

If you have foregone the services of an investment banker, you should make every effort to attract other suitors to maximize your outcome. You should consider approaching prospective buyers you have a relationship with. Regardless, quality competition provides a litmus test of the purchase price and deal terms, improves the timeline, and decreases closing risk as buyers are qualified, requalified, and forced to pay market price and provide other market terms. 

Keep It Professional

You’ve worked hard to build a stellar reputation over the years and it’s very possible that you will encounter the parties to your negotiation again, either in later negotiations or in business. Keep emotions in check – respect the other side and don’t let your desire to close a deal overcome the quality of that deal. Resist wasting their time and yours in negotiations that are not going your way. Don’t allow yourself to feel that walking away is a losing strategy – winning means staying true to your own goals. 

At Linden Law Partners, we specialize in quarterbacking all aspects of M&A deals, and we have represented buyers and sellers in hundreds of M&A transactions. While there are many common threads among the most successful transactions, we recognize the uniqueness and personal attention required for each deal. Contact us to discuss how we can help.

© 2021 Linden Law Partners, LLC. All rights reserved.

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Linden Law Partners

Linden Law Partners is a boutique law firm that represents clients throughout their business life cycles, from formation to exit. We are business and transactional law specialists with extensive experience in all aspects of corporate law and governance, partnerships, joint ventures, emerging companies, private equity and venture capital, private and public securities offerings, and mergers and acquisitions. We offer clients big firm experience at a better price.

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