Keys to Negotiating a Successful M&A Deal

Keys to Negotiating a Successful M&A Deal  Whether you’re buying or selling a business, a few guidelines can help you negotiate a deal more effectively and improve your chances for an advantageous outcome. While you’re probably already familiar with basic negotiation strategies, most parties to an M&A transaction can use a refresher course when it comes to what may be the biggest deal of their lives.

Know Yourself

Good negotiators start by knowing themselves. Before you enter into sale negotiations, take time to identify your goals and your tactics for achieving them. If you’re buying, what’s your “reservation price”-the most you’re willing to pay? Would you be able to walk away from the deal if the seller refuses to budge on price?

If you’re selling, similar questions apply:

  • What’s the lowest offer you’ll accept?
  • Are you in a hurry to sell?
  • What conditions will you require as part of the sale?

For example, the retention of certain employees may be a priority. Also be prepared to speak confidently about your business’ strengths and address any perceived weaknesses. Since the buyer’s negotiating leverage emphasizes your weaknesses, you need to be aware of them and ready to provide a solution that mitigates an adverse effect on the buyer’s offering price.

Know the Other Party

Knowing the other side is as important as understanding your own priorities. This knowledge allows you to map out the negotiation ahead of time. As a buyer, you should have a thorough understanding of the business-gained through extensive due diligence.

If you’re a seller, it’s essential to know that your buyer can afford to purchase the business and, if the deal will be seller-financed, how well the company will be run while the note is being paid off. It’s also helpful to learn if your buyer has looked at many other businesses. Buyers who know they have other options if your deal falls through will probably drive a harder bargain.

Gathering knowledge involves more than research; you also need to be a good listener.

If you’re talkative by nature, make an effort to speak less and listen more when meeting with the other party. The better you understand them, the greater chance you have of anticipating their moves and preparing counter offers.

Build a Relationship

There are plenty of opportunities for differences of opinion in any business transaction, and a business sale is no different. Establishing a cordial relationship can go a long way toward reducing misunderstandings or unintended offenses. Social occasions such as dinner or a golf outing can break the ice. Expressing interest in the other party’s opinion and a sense of humor also can help build a good working relationship.

Going back on your word, exaggerating points or misrepresenting facts in an attempt to strengthen your position, on the other hand, can damage goodwill. Finally, don’t try to box the other party into an untenable position-it’s a tactic that’s likely to misfire.

Flexible is Vital

Selling a business is a complicated process, of which price is only one component. When entering the negotiation stage, keep in mind other items that are subject to bargaining:

  • Down payment amount;
  • Interest rate on a seller loan;
  • Collateral;
  • Seller warranties;
  • Earn-out provisions;
  • Non-compete agreements.

Also consider the structure of the deal-whether the company’s stock is being acquired, or just its assets. In general, sellers prefer a stock sale and buyers prefer an asset transaction, which provides better cash flow after the deal.

Good negotiators take advantage of the multifaceted nature of the process by remaining flexible throughout. This may mean compromising on some elements to get the ones that are most important to you, such as those related to financing terms, the closing date, employee retention or seller warranties.

With so many moving parts to consider, flexibility can get you past obstacles. If you’re hung up on a tough issue-say, the price of a particular asset-try putting it aside temporarily, moving to less controversial points such as the price of other assets, and then circling back later.

Business Sales vs. Selling Real Estate – Which is more profitable in this economy?

Are you involved in Real Estate Sales or are you a Real Estate Broker?
You Should Consider The Advantages Of Selling Businesses and Mergers & Acquisitions through VR Business Sales.

Before Buying a Franchise to be an m&a advisor or becoming a broker to sell real estate, there are several factors to consider in this economy.

Privately-held businesses drive the United States economy. There are over 25 million privately-held businesses alone in United States, which make up over 52% of the United States GDP and 50% of the domestic workforce. The same holds true around the world as privately-held businesses are the economic engine of most countries. With these figures, it only makes sense as a real estate broker to take advantage and start engaging in business sales.

At VR Business Sales, you have the ability to grab hold of a market that’s continually growing, while the real estate industry is continuing to bottom out. As a VR Business Sales intermediary, you will capitalize in an industry that’s full of lucrative opportunities.

Average Commission

Every VR Business Sales intermediary receives, on average, a 10% commission per sale, while the rate for real estate brokers falls around 6% – according to the National Association of Realtors (NAR).

Average Sales Price

The average sales price per business at VR Business Sales is $470.000, while most homes run lower around $200,000.

Average Sales Cycle

You will find at VR Business Sales that 5 to 8 months is the average sales cycle for an engagement, while Realtors see a house sell in 12 to 15 months.

Average Splits

The average split at VR Business Sales is 50/50, while NAR office owners see the short end of a split closer to 90/10.

Minimum Commissions

At VR Business Sales, every office receives a minimum commission on a deal, ranging anywhere from $10,000 to $25,000. Generally, real estate brokers do not receive a minimum commission, as it depends on the stipulations of the sale.

Earning Potential (Top of Price Range)

Any VR business intermediary has the potential of selling listings up to $160 million in value, whereas real estate brokers have only a limited roof of what they can achieve financially.

Average Office Sales

Taking into account every M&A office surveyed in the business brokerage industry, the average sales per office computes at over $1 million, while real estate brokers in NAR have seen their office sales plummet to below $500,000 annually.

Average Annual Earnings

Business sales intermediaries average $179,000 annually in earnings, while real estate brokers earn a fraction of that amount at a little under $48,000.

Inventory Turnover

The success rate at VR Business Sales is quite high, with 1 out of 2 businesses closing. Real estate brokers have a substantially lower inventory turnover rate with 1 out of every 14 real estate listings closing.

Market Potential

Economist Robert Avery from Cornell University estimates that $10 trillion of assets and over 12 million privately-held companies will be transferred as Baby Boomers start to retire. Other estimates predict that 10,000 Baby Boomers will become eligible for Social Security every day with 80 million retiring over the next two decades. This only makes VR Business Sales a more logical and profitable opportunity over selling real estate.

Most real estate brokers don’t realize the full potential of facilitating the sale of a business. Especially with the current real estate crisis here in the United States, why struggle when you can seize the advantages at VR Business Sales?

CAPITALIZE ON THE VR BUSINESS SALES OPPORTUNITY

Investigate your marketplace. Are there privately-held business owners receiving professional representation when trying to sell their business? If not, do you believe that as a franchisee in the VR Business Sales organization you can offer Valued Representation to business owners, and pride yourself at becoming the premier firm in your market

If you see the need to help those business owners, and develop a career in business you can be proud of, learn more about how you can fulfill your professional and financial goals at VR Business Sales today!

For more information about this unique opportunity please contact:

Toll-Free: 800-377-8722  or 954-565-1555

Director of Franchise Development
VR Business Sales, Mergers & Acquisitions

VR provides a Free Weekly Webinar covering all important aspects of the VR Business Franchise Opportunity.

To Join the next Webinar click here for webinar schedule.