Friday, April 11, 2008

Four common deal-killers while mergers

Four Common Deal-killers

Merger negotiating rarely follows a predictable script, yet some of the same problems derail big deals every time. Here are four of the most common traps — and how to avoid them.

Problem 1: Unreasonable Preconditions

Example:

The CEO of the acquired firm insists there will be no merger unless you guarantee he’ll be able to run the combined firms.

Risk:

If the demand is real and not a bluff, you don’t have a deal.

Avoidance Plan:

Make it clear at the beginning of the negotiation that everything must be on the table if there’s going to be an eventual deal.

Problem 2: Strategic Leaks

Example:

While you’re still negotiating price, an article appears in the trade press quoting a “knowledgeable source” that the final deal will be in the high end of the negotiating range.

Risk:

Destroys trust on both sides.

Avoidance plan:

Insist that the negotiating teams be as small as possible. Point out, prior to negotiating, that untimely leaks may scuttle the entire discussion.

Problem 3: Delay Tactics

Example:

Key people from the seller’s negotiating team are unavailable when you want to have a substantive meeting.

Risk:

The seller’s company could be slowing the process down purposefully, perhaps seeking to generate another bid.

Avoidance plan:

Start the negotiation with an explicit timetable agreed to by both parties.

Problem 4: Musical Chairs

Example:

The people on the other negotiation team change from meeting to meeting.

Risk:

New faces can easily result in reneging of previously agreed-upon issues.

Avoidance Plan:

Obtain a commitment prior to the first meeting that the same players will be involved on both sides.

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