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Strategic Buyer

Letting the Seller Speak – An Overlooked M&A Negotiation Tactic


Achieving a successful M&A outcome for your client is usually a winding road filled with negotiations. Complex terms, significant emotional swings from your client and the various potential buyers, different objectives, valuation gaps, and varied interpretations of intentions by each party create negotiation points all along the way. For investment bankers with any experience, they know this to be just “part of the deal.” In fact, negotiation should be one of the top reasons why a company selects an investment bank to represent their interests. We’ve interviewed several investment banker Members of Axial about negotiation tactics. A counter-intuitive tactic kept surfacing: at the right time and in the right circumstances, let your client do some talking directly.

Suppose you’re representing a manufacturing company in an M&A sell-side context. You took on the assignment because your client was highly motivated to sell the business and seemed to have reasonable valuation expectations. Additionally, the client expressed a strong interest in remaining with the company post-transaction, but also willing to exit the company completely with an appropriate offer. In short, you believed the assignment had a high likelihood of success given the fundamentals of the business and the flexibility of your client.

Several months after winning the assignment, you’ve managed the sale process effectively and generated credible interest from the targeted buyer community. You have five letters of intent (LOI) and have reviewed each of them in detail. Unfortunately, the LOIs fall short of your client’s expectations.

To further complicate matters, your client now prefers to leave the business after the sale, primarily because all of the current offers don’t provide sufficient incentive for the client to remain active in the business. Your client is still willing to remain with the company, but an offer has to be right, i.e. large earn-out over several years to capture the company’s upside performance.

You’ve conveyed your client’s feelings, but you’re not getting the results you want; buyers are making concessions here and there, but none of them approach what your client is looking for.

Time to Let Your Client Negotiate?

According to Bob Rice, Managing Director at Tangent Capital, this could be the perfect time to set up a one-on-one conference call between your client and each buyer. Let both parties work through and discuss their differences, of course with your counsel. You’ll need to prep your client before the call, cover talking points, and help your client frame the discussion. You should also be present on the call with your client and provide any support necessary during the conference call, but s/he is running this phone call, not you.

In this situation, despite some of the anxiety you might have, you should let your client freely negotiate—that is, let them explain to the buyer why they want a certain deal structure and the logical reasons for it. Doing so ensures that the seller’s message is accurately delivered to the buyer with no filters. And your client will mostly likely speak with a lot of emotion from the heart, something that can help build and strengthen the buyer relationship and lay the groundwork for continued deal discussions. Of course, the risk is that your client makes a mistake or gets emotionally out of control, but if you’ve sized up your client properly, you should be able to control this through preparation before the call.

Key Benefits of Letting Your Client Speak Directly to Buyers

If the deal is structured such that your client will remain with the company after the close, letting your client do some of the talking now opens up direct lines of communication, gives your client the ability to get to know the prospective buyer, and also provides the buyer a better sense for your client. Direct conversations with your client may increase the buyer’s eagerness for the company, see your client’s perspective, understand their logic, and as a result, be more willing to structure a deal that is a win for both parties. The buyer might also like to have a direct relationship with the seller and feel they have a better shot at closing the deal with your client because of the more intimate discussions, and thus be more flexible in their offer in the long-run.

You’ll of course need to determine if your client has the right personality, mental composure, and articulation capabilities to handle direct discussions professionally. You’ll also need to determine if your client has any desire to negotiate, or if they prefer you to handle it. Whatever the situation, this may be beneficial for you to consider, given the right circumstances, to let your client negotiate the LOI when the time is right.

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