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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