The Human Side of Mergers and Acquisitions

Posted on July 11, 2007

Mergers and acquisitions have a developed a reputation for being brutal, callous and indifferent about the people involved. But it doesn’t have to be that way. A good outcome, for both parties, requires both sides to treat each other well.

Mergers and acquisitions have a developed a reputation for being brutal, callous and indifferent about the people involved. Many business owners are afraid to even consider such transactions for fear that they will come out too bruised.

But it doesn’t have to be that way. A good outcome, for both parties, requires both sides to treat each other well. In the deals I’ve done personally and those I’ve helped others close, great care for the relationships was always a critical part. If you’re thinking about it, here are some key lessons to take to heart – about the people side of the deal:

1. Take your time to get to know the people well. Care about the whole person, including their family, their work, their hobbies, their future, and their aspirations. They know you aren’t likely to become their best friend, but a genuine interest or curiosity in the other party goes a long way toward wanting to do a deal with you.
2. If possible, have a relationship months or years before the negotiation begins. This means you’ll think today about whom you might buy or who might buy you, and you’ll find reasons to mix with them every so often. It might be the only way you’ll even get to the table. And maybe you’ll be the only one at the table!
3. When negotiating, find a way to give the other party just what they really want and need. Of course, nobody gets everything they want. But too often, concessions are thrown on the table that don’t count for much. First, identify what they really absolutely require for them to say yes, then find a way to give it to them. They need a $10 million price? Fine – paid over a lot of years and contingent on good performance, perhaps.
4. If the other party is a jerk or has a value set that is fundamentally opposite to yours, you’ll find yourself unable to behave professionally. Walk away – no, run away from the deal. The damage to your reputation will be long lasting, and you can’t typically make good deals with these kinds of people anyway.
5. Great advisors are a requirement. Find and confirm that they are great before you really need them. One aspect of great is how well they communicate and work with others. If they are going to interface with the other side, will they follow your rules about how to treat others? Are they capable of that? Think about your lawyer, accountant or broker.
6. Don’t ask for things that you’d consider out of line or selfish if the roles were reversed. You’ll make them angry, and they’ll lose trust. The style of negotiating where both parties start really far apart and slowly work toward the center creates massive collateral damage and destroys relationships.
7. Do nothing that would discourage the next 10 CEOs whose businesses you’d like to buy (if they could see your every move in this deal). Reputations spread quickly, and a good reputation will bring you better deals next time with less competition.
8. Be fair. I’d love to get a “steal,” but there is usually fallout from a steal. The seller won’t work with you down the road, because he feels like you were cheap. They say bad things about you to everyone. It’s better to pay on the low side of fair for what the seller has created, but buy a business that has great upside when combined with your resources and talent. Earn the big bucks that way.
9. Spouses are really critical. Most M&A transactions are life-changing events. What the spouses are like and what they say to the decision-maker can make or break a deal. Meet them. Think about their needs and opinions.
10. Be complimentary. Presumably the seller and the buyer are both accomplished. Find areas the other party excelled in and comment on it. Make them feel smart. Ask the seller what they’d do if they had your resources to grow the business. You’ll learn a lot, and they’ll feel good too.
11. Don’t lie or deceive. It is what it is. Certainly think about how you want to position things and how they should be presented, but know that most critical information will be discovered either before or after the deal.
12. Understand the other party’s real motivations for doing the deal. Listen carefully. You’ll avoid saying and doing things that will upset them and that they’ll reject. Likewise, you won’t have to give a number of concessions because you’ll realize that they don’t really serve their needs.
13. Don’t rush to price. It’s the first thing everyone thinks about, but talking about it too soon sours deals. First talk about fit, motivation and the possibilities. Get everyone visualizing the deal happening, and identify what it is you think you’re buying (or selling). Then, when there is little else to talk about, gently get into their expectations about pricing.

Takeaways:

• Take a personal interest in the other parties to a deal long before sitting down at the table.
• Strive to understand and be sensitive to the other person’s needs and desires.
• Be honest with your own intentions and avoid rushing into discussing price.