Though buyers and sellers can usually agree on most of the factors critical to determining the appropriate valuation of a firm…they still may have differing perspectives on what a fair valuation or deal structure may be. As a result, further negotiations are needed. Negotiations are too often viewed as a win/lose proposition. In our experience, however, the most successful approach is to view negotiations through the lens of a successful post-transaction partnership.
When a transaction closes and one party feels that a deal was lopsided or unfair, it is likely going to foster negativity and resentment. These feelings will hurt the newly combined firm’s culture, transition and integration, and ongoing management of the firm. In order for a deal to achieve long-term success, all parties need to be fairly considered and integrated given the value that they bring to the deal or partnership. For this to occur (and for everyone to agree that this is the case), all parties must have a keen understanding of both the underlying drivers of the valuation and how each different facet contributed to the final number. In this way, both the buyer and the seller will feel they have a grasp of how the valuation, deal structure, and transition plan was achieved and how it represents fair treatment all around.
Clearly communicating expectations and assumptions is a critical part of getting a transaction done in an efficient and transparent way. In order to ensure an effective long-term partnership, the final purchase price and deal terms need to be agreed upon as fair to all parties involved. While this is usually focused on the principals of each firm, it also needs to hold true for all the employees as well. Roles and responsibilities post-closing need to be clearly understood and communicated. The way to achieve this is to consistently focus on aligning goals both before and after the transaction. To this end, a well thought out deal structure and transition plan is key.
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