Q & A Table of Contents
Are There Special Negotiation Skills Needed In Mergers &
Acquisitions?
From: Rene, South Africa
Question: I am a final year MBA student at the Wits Business School,
University of the Witwatersrand, Johannesburg, South Africa. My research is
focussed on
1) defining the negotiation competencies required in Mergers and
Acquisitions and 2) establishing the importance relative to the
performance of these competencies in South African negotiators in Mergers
and Acquisitions (via a questionnaire).
I have conducted a number of interviews with "experienced" negotiators in
Mergers and Acquisitions so as to be able to generate a list of
competencies which will be used in the questionnaire.
I would be very grateful for your input in generating the list of
competencies required in negotiating Mergers and Acquisitions. My approach
is to assess the knowledge, skills and values required in the negotiating
process in Mergers and Acquisitions (i.e. not just the business acumen).
Response: Frankly your question poses an interesting challenge. I find it
hard to think of a peculiar range of negotiation competencies needed in the M & A
field that are not also found among the negotiation competencies needed for
business transactions as well as such daily life issues as negotiating with
one's teenage children.
Perhaps one can look more usefully at the question by considering where
negotiation issues are particularly applicable in M & A.
We need to think of the M&A process as having several stages.
a. In the first stage, a company (or investor) needs to consider its
interests and how those interests can best be met: Organic growth,
pre-emption of competition, synergistic strengthening of business, etc.
This is parallel with the focus on interests every negotiator should
undertake before entering into the process of negotiation.
Once the merger/acquirer (hereinafter m/a) has sussed-out his/her interests,
then the question is choosing the party/parties with whom to negotiate. The
m/a needs to have a series of benchmarks to determine whether s/he is
dealing with the right company, the right person(s) within the company, etc.
The merger/acquirer needs to have a good sense of his/her BATNA -- Best
Alternative(s) To a Negotiated Agreement. These can include organic growth,
joining forces with different parties, etc. Similarly, the BATNA
considerations need to be in place so the m/a knows when to quit before
wasting time and other resources on a wild goose chase: e.g. substantive
issues, financial disagreements, ethical considerations.
b. In the second stage, which might be considered that of formal
negotiation, again the m/a's most critical job is good preparation.
Comprehending his/her own interests and making intelligent assumptions of
the interests of other parties is crucial. Even this divides into stages:
1. Developing one's own set of assumptions about various parties'
interests -- with the recognition that every time you assume you run
the risk of making an ASS of U and ME. With that understood, the
negotiator can develop a sense of the information s/he needs to learn
from others to validate those assumptions.
2. Next the m/a should work with his/her team to ascertain the interests
of the individuals involved. This serves several purposes: it helps
develop the negotiator's comprehension of the in-house situation; it
increases the likelihood team-mates will 'buy into' the process; it
creates a clearer sense of limits and objectives; and it becomes a
mechanism for selling the ultimate deal back to one's constituencies.
A parallel objective of this in-house preparation is that it gives the
m/a a better sense of who needs to be physically present during the
negotiation process. Ironing out internal differences ahead of time
is another consequence of this; when a team exhibits internal
disagreement in front of the 'other side' it loses credibility.
In the formal negotiation process, the m/a needs to keep in touch with
her/his constituencies -- but must also be able to present himself/herself
as a drop-dead decision-maker. The m/a should use the negotiation process
to garner information that will help lead to wise decision-making, a deal
with which the parties are happy. After all, if a party feels bulldozed
into an agreement, they are not likely to honor it but may be expected to
'work to rule'. Again, this is not peculiar to mergers & acquisitions, but
is crucial in all negotiations.
c. Once agreement is reached, the deal must be sold to the constituencies of
each party. Which elements of which corporate culture are to dominate the
resulting entity? This is certainly an element that deserves consideration
during formal negotiation. One question is whether, after a certain point
has been reached, corporate culture becomes an element of the due diligence
inquiry. Does a representative of corporate sibling A sell the deal to
constituencies of sibling B and vice versa?
d. Does the agreement include benchmarks for determining whether the deal
should continue to go forward or be aborted before there's a bad result for
one or more of the parties? This is essentially the M & A isotope of a
negotiator's need to build in mechanisms for monitoring the implementation
of an agreement. Sometimes the monitor is a disinterested third party (e.g.
the UN in international situations); other times the parties monitor the
deal's implementation.
In summary, when one considers Mergers & Acquisitions, the fundamental
elements of negotiation are all important: preparation, comprehending the
interests of the parties and their constituents, determining what
information is needed, finding that information, acting on that information,
dealing with relationship issues, utilizing proper analysis of parties'
BATNA, etc.
Rene, this has obviously not given you what you requested: a list of M&A
specific guidelines for negotiation. I don't think it is wise to consider
M&A activity as a separate universe in terms of negotiation.
Good luck and good negotiating, Steve.
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