In short
- Be sure you understand net debt, working capital, the price mechanism and any deferred payments before you negotiate.
- A credible alternative, even one you never use, strengthens your position.
- Agree the key terms early and prepare as you would for several buyers.
Questions to answer before you negotiate
With one buyer, the conversation quickly turns to technical details. Clarify these points before you negotiate.
- What are your net debt and normal working capital, and how will each be measured at closing?
- Should you fix the price through a locked box or adjust it using completion accounts? What does each mean for you?
- How do deferred payments and earn-outs change the amount and timing of the cash you receive?
- What alternatives do you have? Another strategic buyer, a private equity partner, a management buyout or keeping the company?
The buyer has probably made several acquisitions before and may use unresolved points in negotiations. Those details affect how much you receive.
Keep an alternative open
Options give you bargaining power. An adviser can keep a credible alternative open, discreetly test other buyers' interest and widen the process if negotiations stall. Even if you continue with the original buyer, an alternative changes your position.
Agree the important things early
The letter of intent should set the headline price, structure, payment at closing, treatment of debt and cash, key conditions and the length of any exclusivity. The buyer may seek more favourable terms later on any points left open.
Prepare as you would for several buyers
Even one buyer will carry out full due diligence. Prepare financial information, contracts and corporate records early. That helps avoid surprises that could reopen the price and shows the business is well run.
Maintain business performance
Negotiations with one buyer can drag on. Strong trading throughout the process is one of the best protections for the price, and it is much easier to keep if someone else is running the transaction.