In part one we covered the tricks some buyers try before signing a letter of intent. Here we look at the ones that tend to surface after the LOI is inked, as the balance of power tips from seller to buyer. Through all of it, the seller's ultimate advantage is the ability to walk away, even at the eleventh hour, if a buyer tries to turn a fair, negotiated deal into a one-sided one.
Using diligence to renegotiate price rather than to confirm
If the seller prepared properly, diligence should be confirmatory. Dastardly buyers instead use it to chip at price and terms, often after gaining exclusivity, sometimes enlisting their quality-of-earnings accountants and lawyers to manufacture the appearance of a real issue. Challenge the rationale, be ready to reject unjustified changes, and absent a new meeting of the minds, be ready to walk.
Hunting for gotchas
Badly behaved buyers seize on anything the seller did not flag, holding every negative, however immaterial, against the seller to renegotiate incrementally, while ignoring the positives uncovered along the way. The best defense is to push back and be willing to walk away.
Directing counsel to write a one-sided first draft
Both sides contribute to the purchase agreement, but someone leads, conventionally the buyer, and the party who drafts first has the advantage. A dastardly buyer uses that to produce a lopsided draft, forcing the seller and their lawyers to spend significant time and money redlining it back to fair. The same fair document could have been reached with far less effort and cost.
Taking an extreme position on every deal point
Some buyers label every demand market and take an extreme stance on each one. Even winning a few improves their deal, and the repetition is designed to wear the seller down into agreeing just to close. Stay firm and do not be bullied by claims that a position is market.
Refusing to be transparent
Mutual transparency matters. Buyers may go quiet on deal status, on documents and when they will arrive, on financing, open issues, and timing. Insist on frequent standing update calls, and remind the buyer that without transparency you may be less willing to extend exclusivity if they run up against the deadline.
Working the target working capital to their advantage
The working capital mechanism is meant to be net neutral; neither side should make money once the target is set. Dastardly buyers seek a one-sided adjustment, or use an unreasonably high target as a quiet way to lower the price.
Demanding a change at the eleventh hour when nothing has changed
The buyer bets that the seller is deeply invested, has mentally crossed over to having sold, and fears damage if the deal dies, so they will cave. Stand firm and answer with a clear no.
Sellers can avoid most of these by doing their diligence on the buyer before signing the LOI, and by not crossing over: do not act as though the company is sold before it actually is. Owners who cross over are far more likely to capitulate to unreasonable demands. Keep your wits about you, and you are far more likely to land fair price and terms, and an outcome that meets your objectives.
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