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Understanding negotiations during a business sale

See all articlesunderstanding business negotiations
Selling a business
By
Kevin Han
Kevin Han
Senior Analyst
July 31, 2019
3
minute read

Less Wall Street, and more professional diplomacy

Business negotiations are rarely like those seen in Hollywood. In the world of modern business, it's very unlikely that you'll see men and women in expensive suits arguing around the boardroom conference table at 1:00 in the morning.

While this kind of drama might occur for $1 billion deals involving multi-national companies, the reality of business sales for companies between $5 million and $100 million is that they usually take place in a protracted manner over a number of weeks or months.

Nash Advisory are dedicated to negotiating the best deals on behalf of our clients. We can leverage the best parts of your business to achieve a winning result. To find out more, visit our Selling a Business page.

Standard negotiation process

Negotiation is central to business deals between buyers and sellers. A normal negotiation between a buyer and seller usually progresses via the following steps.

  1. An offer is submitted to a prospective buyer.
  2. Four weeks later, the buyer will submit a written headline offer with various terms.
  3. Headline offer is discussed, and the fine print is refined over the next two weeks.
  4. Fine print negotiations can involve multiple discussions and preparation of information to support the case of each party.
  5. Final headline offer negotiation is carried out by Nash Advisory and the other party.
  6. A term sheet is signed by both parties.
  7. Legal documents are prepared.

What sellers can expect

At either end of the process, sellers can expect an initial offer, and a final offer. What happens in between will depend on the type of business being sold, its value, and the expectations of what both parties want to achieve from the sale.

Depending on the type of sale, there may be upwards of 20 discussions between Nash Advisory, the buyer, and the various advisors. Fine print is negotiated in detail and often takes longer to agree than the headline price or offer.

When dealing with large trade buyers, sellers should be wary that they are not interested in more than five rounds of bidding for a small asset. Remember that time is money, and big companies have 50+ projects on at any given time, and plenty of acquisition opportunities available to them.

For most business sales, the time from the first offer to a signed legal agreement will usually take around 12 weeks.

What sellers are likely to encounter

successful negotiations business sale

Nash Advisory have been involved in many business sales over the years. We've seen it all, and we know what you should expect when you decide to sell your business.

You should expect several rounds of negotiations over the price. This isn’t a house auction and there is no big wooden hammer. Nash Advisory will have accurately valued your business, but you must be aware that potential buyers have their own objectives and limitations when it comes to buying your business.

You should expect to not directly negotiate with the buyer. You will usually have around two to three meetings with them, but the majority of the negotiation will be done on your behalf via professional financial negotiators like the team at Nash Advisory.

If your business is valued between $5 million and $100 million, it's likely that the deal will progress quite quickly. Barring any unforeseen difficulties, you should expect all negotiations to be complete within a couple of months.

Some things to remember when negotiating

The team at Nash Advisory is here to help you through every step of the process, from preparing your business for sale, to responding to offers, to negotiating the fine print on your behalf. We are always working towards the best outcome for you, and will offer you sound financial advice to achieve this goal.

However, the final decision to sell is always yours. If you're ready to sell, there are some things you should consider before you begin negotiating:

  • Price isn't the endgame. You should also consider the detailed terms of the negotiation before you arrive at the final price.
  • Be prepared to make concessions. This will put you in good stead with your buyer. If you're willing to sacrifice something upfront, you can negotiate for more further down the line.
  • Understand your buyer. By doing your homework, you can discern exactly what your buyer is bringing to the table, and what they stand to gain from your negotiations.

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