Structuring a Deal in Negotiation

By understanding your deal’s structure, you’re going to be able to identify opportunities to get a better deal as well as make the deal easier to go through because you can make it better for all parties involved.

Deal structure is going to impact your negotiating approach. There are several things you should look at as you lay out what the structure is. What are the objective criteria that exist and what are the assumptions you’re making about the deal structure? Are there financial criteria that you’re going to look at? Perhaps NPV or ROI, or how much the deal is going to cost. Laying out these objective criteria and some of the assumptions you’re making can help you be more fact-based in approaching the deal.

Next, understand the barriers to the deal. There are a lot of things that are going to get in the way of a deal getting done. The better you understand what these potential barriers are, the better you’re going to be able to negotiate either around them or get things as concessions to help you overcome those barriers.

Third, when does the deal need to be done? Understand the impacts of timing, what’s the value of doing a deal now versus waiting? Does your position get stronger or weaker over time?

And last, understand what would expand the pie. What could make this a better deal for all parties involved? By understanding additional things that you could bring into the deal, you may be able to overcome some of the barriers that were there in the first place.

For example, I had a client at one point that was looking at purchasing some competitive assets. The objective criteria that we were going to use were ROI, return on investment, the dollars os synergies we would get from making the deal, the net present value of making that deal. And we made several assumptions upfront that would help us price the deal. We assumed pricing around the deal, market share we would be able to achieve if we owned those assets, and what sales of the combined business would look like going forward. Assessing barriers was critical, there were regulatory barriers, there were operational and acquisition barriers and lastly, sales price was going to be a barrier that we had to overcome. As far as timing, we had six weeks, this was a bid process, there was a specific date on the calendar that a bid had to be submitted. Timing in this case was critical and we knew the longer we waited, the worse our position got. Finally, in terms of the structure and expanding the pie, we could offer to keep their management team on, we could offer to invest in the business after we purchased it. We could even add financial incentives after the fact if the teams stayed on and helped us grow the business.

So we made it a better deal without having to layout more cash upfront. By understanding the deal’s structure, you’re going to be able to identify opportunities to get a better deal as well as make the deal easier to go through because you can make it better for all parties involved. Spend that extra time laying out the structure and documenting it so that when you take your initial position in that negotiation, you’re able to get the most value out of the entire process that you can.

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