Strategies for Successfully Negotiating an M&A Transaction

Which deal component matters most to a successful transaction? Pricing and culture are obviously important, but smaller details matter, too. What will you do if the other side walks away? Do you have the right deal team to support a successful transaction? These following strategies can help you ensure you’re prepared to deal with every contingency.

‍Don’t Neglect Due Diligence

‍The representations each party makes in your agreement are a supplement to, not a replacement for, due diligence. The seller may be required to disclose litigation, but only due diligence can uncover certain other liabilities, such as costly litigation against customers or suppliers. Buyers must undertake a detailed, exhaustive investigation. Sellers, too, must prioritize due diligence, particularly if shareholders take the buyer’s stock in the sale.

‍Draft a Detailed Letter of Intent

‍Putting the terms on the front end of the deal process can help weed out uncommitted parties. This preliminary document can help you resolve important issues and establish baseline expectations. For example, if a seller demands specific terms that the buyer cannot tolerate, the LOI may help establish this, saving both from wasting their time and resources on a deal that is doomed to fail.

‍Choose Deadlines for a Reason—Not Randomly

‍Many agreements contain drop-dead dates. These are dates by which a party can terminate the deal without being penalized. Be thoughtful about these dates, and take into consideration the activities that must be undertaken before closing. The more complex the transaction, the farther out the drop dead date should be. If either side shows signs of cold feet, however, a pending drop dead date can speed things along. Work with your advisory team to strike the right balance.

‍Consider Board Dynamics

‍The CEO or CFO may negotiate the sale to gain meaningful compensation for themselves. Boards are often skeptical of these large executive cuts. Be mindful of board dynamics. The board’s advisors can play a vital role in assessing the merits of the transaction, and may be less easily distracted by enticing compensation.

‍Be Sensitive to Employee Needs

‍The seller’s employees are always going to play a critical role in a successful integration. They have irreplaceable institutional knowledge, and may have important relationships with suppliers or customers. Consider building a retention bonus pool to keep critical staff on board. Be mindful of the fact that critical team members may not always be obvious. They might not be the highest ranked or best paid. So part of successful integration demands identifying the real power players—not just those who market themselves well or have the right title.

‍About Kratos Capital

‍Kratos Capital is an independent, Dallas based M&A advisory firm that specializes in mergers and acquisitions, private capital raise and corporate finance, across a broad range of industries. Our bankers comprise an aggregate of over $1 billion dollars in completed transactions, resulting in over 200 deals completed in the private middle-market.We are an experienced, highly effective firm specializing in managing transactions with capitalized values from $25 million to $300 million. Our industry-tailored investment banking expertise helps owners maximize the value of their investment of time, money, and hard work.We measure the success of our process by the outcomes it produces. Routinely, our methods result in attractive initial offers, and clients closing a deal at or above their initial valuation range.