Human behaviour can be so predictable. If you’re a vendor, you need to be aware of certain “things a purchaser will do”. With 30 years of deep M&A experience, I’ve seen the same behaviour from purchasers time and time again. It’s often just the result of the purchaser’s over zealousness and excitement to buy the business. Nonetheless, it can have a negative effect on the vendor’s negotiating power. A lawyer with the experience, skill and knowledge that comes from 30 years at the negotiating table is not only aware of these predictable behaviours but knows how to counter them to maintain you in a strong position.
On two recent transactions, two completely different purchasers exhibited the same behaviour as we were nearing the closing. Though in each case I warned my clients that this behaviour may manifest, unfortunately they didn’t take steps to prevent the situation. In both cases, this behaviour had the potential to negatively impact my vendor client’s bargaining position.
In one case, the purchaser convinced the vendor to let the purchaser into the business before closing so the purchaser can speak to all the employees at an assembly. The purchaser convinced the owner the purpose is to tell the employees what great things are coming in connection with their purchase of the business (i.e. a cheerleading session). Keep in mind this was before the vendor received payment from the purchaser. Fortunately, I was informed of this plan and stepped in quickly and forcefully to stop the process. By allowing this assembly, my vendor client would be weakening his bargaining power. What if, after this assembly of employees, the buyer starts to play hardball? The vendor would look foolish to his employees if the deal doesn’t close. Thus the vendor is under new pressure to cave in to new demands.
So if you are a vendor of a business, you need to be aware of purchaser behaviour. Unfortunately, you won’t know this unless you engage an experienced M&A lawyer. The following are just some of the behaviours I’ve seen on transactions that can negatively impact a vendor’s bargaining position:
- the purchaser is asking you to release information that you’re not comfortable with releasing at the time;
- the purchaser wants to go into your business and start talking to employees (about the transaction or anything else); or
- the purchaser wants to speak to your customers.
The foregoing is not an exhaustive list and there are other behaviours you should be aware of. If you let the purchaser do any of the above (without proper controls in place), you will find your negotiating position becoming very, very weak.
Always keep in mind that the purchaser does not own your business until they show you the money. Any attempt on their part to do any of the above (or other similar things) before they pay you the money will put your sale in jeopardy.
Feel free to reach out to me if you have any questions.