PFFC - October 2007 - (Page 47)

BUSINESS TRANSACTIONS areas can be more important than the deal price itself, in certain cases. Therefore, the reps and indemnifications should be a significant factor in selecting the company with which to negotiate. The LOI provides for an exclusivity period to negotiate a deal with the selected acquirer for a specified time period, usually 45–90 days. During this exclusivity period, the seller can neither solicit nor have conversations with any other prospective acquirer. Although most investment bankers don’t require this, a skilled negotiator requires the client’s exclusivity period be terminable at its sole discretion if the selected acquirer asks for a price reduction or a change in the composition of the transaction consideration. This is essential to protect a seller’s legitimate interests. Know Your Adversary After a seller obtains the drafting rights, it is in the seller’s best interests to prepare a reasonably fair first draft of the agreement. A seller never wants to make excessive demands that will unlikely be obtained. A much more favorable deal will be realized by developing a negotiating pattern of sustaining the seller’s major positions. Correspondingly, the seller’s starting position should not permit significant concessions in order to obtain an acceptable deal. This negotiating approach will allow the acquirer to know that you are reasonable but have minimum flexibility after you define your position. You want to get the acquirer used to conceding the major points that you demand. Focus on “Winning the War, Not the Battle” A successful negotiator will know the personal and team goals of all members of the acquirer’s negotiating team. This includes the principals, investment bankers, and legal counsel. Not only must you know the team goals, you must determine if any of the members’ personal goals are in conflict with the team goals. They often are. You also must become familiar with the style and determine the negotiating strategy of the acquirer. Armed with this knowledge, a negotiator should be able to establish and/or revise, if necessary, the negotiating battle plan. An experienced negotiator will know the adversary so thoroughly that the adversary’s reactions and every move can be anticipated such that the negotiator will have already determined a countermove to combat the acquirer’s reaction to the negotiator’s intial move. This ability to stay one or two steps ahead on all negotiating issues will help assure eventual success. Obtain Drafting Rights to DPA The drafting rights to the DPA are extremely important. A seller’s ability to obtain control of these rights is critical to eventual success. If the seller doesn’t get this control, it assures getting the acquirer’s canned acquisition documents, which are likely to be structured unreasonably in the acquirer’s favor. This means the seller will have to expend considerable negotiating capital to get back just to a fair starting point to negotiate a reasonable DPA. WWW.PFFC-ONLINE.COM This requires you to have a clear definition of what victory is in this negotiating war. Therefore, before the negotiating process starts, it is essential that the seller clearly defines pricing objectives, desired deal structure, the composition of the transaction consideration, and the acceptable level of exposure in the reps and related indemnifications. If the seller remains completely focused on these goals, he/she can make any concessions that the acquirer requests, assuming they do not prevent sustaining the basic positions needed to “win the war.” However, my negotiating philosophy dictates that an acquirer not be given any substantive concessions, unless a comparable concession is received in return. Correspondingly, a seller should be willing to concede nonessential issues in return for concessions that facilitate the achievement of his/her overall acquisition goals. Negotiations are an art, not a science. They are the most critical part of the acquisition process. In fact, they are the very essence of acquisitions. Negotiations will determine if a sale is a success or failure. The way to assure your success in the negotiating process is to follow the strategies and techniques discussed in this article and to make sure your lead negotiator is an experienced, knowledgeable, and aggressive veteran of the negotiating wars. George M. Spilka is president of George Spilka & Assoc., Allison Park, GA, an acquisition consulting firm based near Pittsburgh that specializes in middle-market, closely held corporations. He has advised clients on the sale of their firms for 25+ years. His client base includes converters, manufacturers, and distributors. Contact Spilka at 412/486-8189; spilka@nauticom.net; www.georgespilka.com. Since the seller doesn’t get the benefit of any unknown positive factors, the seller shouldn’t get the downside risk of any unknown negative factors. OCTOBER 2007 | 47 http://www.georgespilka.com http://WWW.PFFC-ONLINE.COM

Table of Contents Feed for the Digital Edition of PFFC - October 2007

PFFC - October 2007 Contents First Glance From the Editor Calendar of Events Web Lines Process Management Package Converting News Clips Narrow Web & Label Reporter Narrow Web & Label What’s New Products Bagmaking Slitting/Rewinding Digital Printing EB Flexo Web Handling Paperboard Packaging Security Packaging Business Transactions What’s New Products Focus: Unwinds & Rewinds Trade Show in Print Services Directory Classified Marketplace Equipment Buyers & Sellers Advertisers Index thePLACE Experience Speaks

PFFC - October 2007

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