Q&A: Purchasing a Company

A Negotiation Expert Answered:

We commend you for seeking a win/win outcome. At The Negotiation Experts, we advocate value creation approach. So the question we pose is: "How can you best collaborate with the seller so as together to create more value?" Historically, the best deals are crafted when both parties work collaboratively together - often steering the agreement through many iterations. Whilst this does of course require that you follow the example of professional negotiators by preparing fully with brainstormed creative ideas before meeting, your creativity should not stop here. We would recommend involving the seller in your ideas and soliciting their ideas. Presently, from the information you have provided, it looks as though you have created an offer and are awaiting their approval, ratification or counter offer. This appears to us, from the information provided, to be a situation of proposal and counter proposal.

We would encourage you to think in an integrative rather than a distributive manner. So instead of thinking how to overcome the building valuation difference and timing of payment through addressing the building - think of how the deal as a whole could be structured to meet both parties needs. One example may be for the sellers to retain some ownership and / or claim on profits until such time as you purchase the business outright. This option would share risk and reward and could resolve the timing of payment challenge you face.

There appears to be a second question implied by your vastly differing valuation prices for the building. We would assume the only reason you would be prepared to pay the difference of £400000 would be because you have assessed the value of the entire business (including the building) to be greater than the figure of £4 million. If you intend to use this difference to reduce the overall asking price, then we suggest you ask the seller to substantiate their £1.6 million valuation in the same manner you have - through an independent professional source. If you were to argue over the difference, it is be most likely that you would split the difference and settle at £1.4 million or not to change at all - which would be suboptimal. To avoid acting on emotion and bias, when negotiators are in disagreement on certain issues, we advocate investing time investigating external precedents that can be verified and quoted. Perhaps you would like to have more than one valuation to quote? If your bank were to lend you the money, what valuation would they place on the building?

If you hit a deadlock or strong differences in views, one way to reach resolution is to agree on the appointment of an independent party to move things forward. We usually refer to this party as a mediator or facilitator. The parties to the agreement have the option to commit themselves to the recommendation of the independent party, or to use the information in seeking to further reduce the distance between them.

Thus far we have not touched upon either partys interests. Interests are the foundation upon which any innovative methodology negotiated outcome is based. So is there something that the sellers could offer you that would prove valuable to you but would cost them very little to provide? Perhaps the owners could consult to you for a certain period of time for free? Similarly, what can you offer to the sellers that would cost you little but would prove valuable to them? Before you can be creative, you need the foundation of each partys interests to be mapped out as fully as possible. We shall not delve into the methods of uncovering interests and how best to use these for creative value in this response.

The principle of reciprocation of concessions is another matter to be aware of in the context of your current negotiation. It may be useful for you to consider what it is that you would require in exchange for adjusting your offer to meet with their valuation. In other words, if you increase your offer, what will they be able to offer you in return? Remember that negotiation is about the future - we are not able to change the past, but we can determine how we will manage our relationship and affairs moving forward - therefore getting stuck on what was our respective valuations in the past will only force the negotiation to assume a positional character and it then becomes a zero sum game (someone has to lose in order for another party to gain).

Then of course there is the question of your BATNA (Best Alternative to a Negotiated Agreement). So what would each party do if agreement was not reached? Would you find another business or invest your money elsewhere? Would they find another buyer or continue to run the business? The most powerful source of negotiation power flows from understanding both parties BATNAs - so map out and then build on your options. Else you risk putting all your eggs in one basket.

One of our consultants will be travelling to Dublin in a couple of weeks time. Should you wish to arrange a coaching session, we would be delighted to provide you with a more hands-on approach. Alternatively, the Advanced Negotiation Training is being run in London 27-29 September 2004. Delegates regularly solve their most complex negotiation issues during this course, and it will prepare you for running your new business more successfully. Please feel free to contact us to further discuss your best options.