Dealmaking can become very personal, especially when a founder is involved.
“A founder is a salesman,” says R. Louis Schneeberger, who has guided more than 100 acquisitions to a close and more than 30 companies to a sale. “He’s not an engineer. He’s not an accountant. He’s a salesman. These are emotional people, and they’ll get worked up over issues that aren’t significant to others, but are to the lead sales guy of a company.”
A master negotiator and business adviser, Schneeberger specializes in diffusing situations like these. “I need to convert the issue to dollars and cents and have them understand it’s just money,” he says.
Here, Schneeberger and other top dealmakers share their advice for navigating negotiations to a successful outcome.
Know what you’re in for
When you’re negotiating an acquisition, take the due diligence process seriously — especially if you’re looking to buy a company from its founder.
“You really want to understand all that he’s gone through and the results he’s had in the past,” says Schneeberger, executive chairman at the SaaS-based technology platform Proformex. “How much does he care about the company? The other part is knowing what the issues are. It’s not good for you long term to do a lot of nice talking versus getting into the key issues.”
Keep in mind that the amount of work involved in making a deal is not relative to the size of the company. An acquisition won’t be easier to negotiate simply because you’re buying a smaller business.
“When you’re buying a $100 million company, the amount of work involved is not 10X what it is when you buy a $10 million company,” Schneeberger told Smart Business Dealmakers last year. “Does your team have the bandwidth and the bench strength to take on the additional workload that comes with working through and negotiating a deal? If it doesn’t, do you have a plan in place to bring in external support?”
When Park Place Technologies launched its acquisition strategy (one it’s currently executing), CEO Chris Adams realized the M&A process was putting a strain on employees. So he created a dedicated internal team to manage each transaction.
“If I have good, talented people over there executing, I’m going to let them do their thing and get out of the way,” Adams told Dealmakers in November 2017. “If it doesn’t go well, I’m accountable. But if you, as a leader, want to do everything, it’s going to fail. There are just too many variables associated with acquiring a company.”
Remember that time is money
It takes time to assess value and negotiate what you think is a fair purchase price for a target. But your costs are accruing as talks proceed.
“Every day, the clock is ticking and your dollars signs are rolling up,” Schneeberger says. “Your accountants, your lawyers — you’re doing all this work. Everybody is doing all this due diligence. It could be $5,000 or $10,000 a day you’re spending.”
If you wait too long to address key issues, you risk sinking a lot of money into a deal that never happens.
“There could be two issues in the deal that are so significant, it will make you not do the deal,” he says. “It’s best you address it. If you don’t address the big ugly elephant in the room, you’re just wasting money.”
Edward F. Crawford, a legend in Cleveland business circles, has made more than 90 acquisitions in his time leading ParkOhio Holdings Corp. But as he told Dealmakers, he’s not afraid to walk away from a deal when he senses something is off.
“When I’m sitting with someone and they’re selling the company, the first thing I want to know is why am I so lucky that you’re selling me your company?” Crawford says. “If they can’t make it clear why they are selling the company, there is something wrong. I’ve bought a lot of companies, but I’ve also walked out of a lot of rooms when I got the wrong answer.”
You may see value in offering the seller substantive ideas about what you would do with the company upon buying it. It’s not a bad idea, just don’t reveal too much.
“Everybody on the other side wants to know what’s your plan?” Schneeberger says. “What are you going to do? What’s changing? It may give you a leg up when they understand your plan and they like your plan. If they don’t like your plan, maybe it will hurt you.”
“You can go too far, though, if you tell them too much. I had one deal where we told them so much, they pulled the deal and executed our strategy, and they didn’t sell the business.”
Ultimately, the strategy you follow in buying a business will contribute to your success should you ever go on to sell it.
“Sol Siegal at Olympic Steel, he always said, ‘Anything well bought is half sold,’” Schneeberger says. “There is a certain price where you can buy a company. You need to know where that endpoint is, no matter what you’re doing with it. Some of the best deals you do are the ones you don’t.”