How Do I Choose a Negotiation Advisor?

Stan Christensen

Stan Christensen
Managing Director
Arbor Advisors

If you’re an entrepreneur looking to either raise capital, or perhaps sell your company to a strategic acquirer, it’s important to think about the role negotiation can play in your transaction. While the market readily helps predict the valuation of larger companies, valuing smaller businesses tends to be highly elastic. As a result, your ability to get the best possible outcome for your transaction hinges on how well the deal is negotiated, and therefore negotiation plays the determining role in the outcome of a transaction.

Let me provide a real-life example: We were recently called on to help an entrepreneur after negotiations for the sale of his company were well underway. Having reached $20 million in annual revenue with a high growth rate, the entrepreneur was hoping for a $100 million valuation. Despite substantial interest in the deal, offers had plateaued at around $90 million. Our job was to negotiate a higher valuation. We were ultimately successful based on the use of the following approach:

  • We helped the buyer understand the future potential value of the deal through generating creative options, both in terms of synergies in the two business models, and enhancements to the team.
  • We structured the deal so the client would have an exponential return if the future goals of the acquirer were achieved.
  • We built strong relationships with different stakeholders at the buyer, an approach not commonly used by investment banks.

We were ultimately able to sell the company for an enterprise value of $125 million, an outcome far beyond the client’s expectation.

Most advisers just “wing it” when it comes to negotiation rather than taking a systematic approach. It’s useful to ask potential advisors, be they bankers or attorneys, what their framework and approach is to negotiation. Most will just say something like “I’ve done a lot of successful deals.” At that point, you know they probably just follow their gut rather than taking a sophisticated and systematic approach. In my view, taking the time to dig into the specifics of how the person approaches negotiation is one of the most important things you can do when sizing up an advisor. When you do so, keep these three points in mind:

  • Always remember that negotiation is an attempt to influence or persuade a party to do something. It’s not a mechanical process or even a linear one in most cases.
  • Conventional wisdom often defines negotiation as a one-off event (such as buying a car), where your sole aim is to be on the winning side of the deal (or in the case of the car purchase, to get the best price). In reality, winning and getting the best deal aren’t always the same thing, nor should you think of negotiation as a one-time event. Instead, look at it as on ongoing relationship where it’s in your long-term interest to get the best possible outcome for everyone involved.
  • Always make sure that strong relationships are at the center of your negotiations. When you focus on building meaningful relationships, it paves the way for the creative problem-solving necessary to get to the optimal resolution.

In my experience, getting to the best outcome in any negotiation almost always requires the deep understanding of both parties’ interests which comes from careful listening, as well as an open mind to addressing whatever issues may arise during the process. When these things are absent, negotiations tend to break down.

Negotiation can bring value to the table, whether you are raising capital or selling your business. There are seven core components of the negotiation framework I use. These include:

  • Using communication to persuade the other side you’re really listening
  • Exploring common ground through relationships that help you work through differences effectively
  • Understanding the interests on both sides to help make the pie bigger
  • Keeping the conversation focused on options so that you get to creative solutions that meet real needs
  • Identifying criteria and standards of fairness for agreement that work for both sides
  • Showing commitment when there’s agreement and move the deal to a close
  • Staying open to alternatives when agreement falters, and knowing when it is best to walk away.

Given the disproportionate value that negotiation expertise can contribute to a transaction, you want to make sure that you truly understand the framework your negotiator is working from. While the outcome of any transaction certainly matters, it’s the journey that gets you there that will ultimately give that outcome its shape.