Business Buyers Negotiating Tactics

Business sellers have a huge emotional connection with their business. Their identity is intertwined with the business they have devoted years into building.

Positioning statements by buyers are often interpreted as personal attacks or insensitive comments by someone that doesn't get it. Managing this process is often critical to maintaining a good buyer/seller relationship and creating an environment where a deal is possible.

The reaction of the business seller after the buyer has reviewed the Offering Memorandum, Confidential Business Review, or "Book" that has been prepared for the business sale engagement, is often "a blow to the ego" for the seller.

Below are some sample questions that demonstrate this approach from a buyer:

• Why are the advertising costs so high this year?
  
  
• There seems to be an unusually high level of product returns reflected on the current year's financials. Please explain.
  
  
• What caused your dip in revenue a few years ago?
  
  
• Your business seems to be concentrated nationally only. How much business is done outside this country?
  
  
• Generally the unions are very restrictive on the use of outsourcing. Is that the case with your company?
  
  
• It looks like the majority of the business is originated by the owner. What happens if they leave and how can we be protected?
  
  
• Your order lead time is 6 months. Does that cause you to lose orders?
  
  
• The auto market is in terminal decline. How do you see your future in that environment?
  
  
• Cost pressures have reduced loyalty with your 3 largest customers. What effect is that having on margins?
  
  
• Your company appears to have little or no relationship/brand identity in China, limiting potential in a very large growth market. Can you comment on this?
  
  
• Your licensing revenue accounted for $XX last year. Are all of those licensing agreements expiring?
  
  

These questions are meant to help the potential buyer really understand the seller's business and understand any issues that could impact the business in the future. The second not so subtle message is that we really understand the flaws in your company and we are going to manage your expectations and justify our less than generous offer.

That's OK. But, do they expect us to take this lying down? Two can play at that game! We must counter punch, and our defense generally takes the form of answers that either explain why a negative was a one-time occurrence or something we have already identified and have taken corrective action.

Our second major counter to the negatives from the buyer is to demonstrate that we understand why they are an interested buyer in the first place and try to position our company as a strategic acquisition.

Following is an example of some strategies employed when the buyer exercised their right to attempt to drive down the selling price of a business. 

• Your team was obviously very sensitive to retail pricing pressures through your own personal experience. The XYZ Product is in a different stage of its product cycle then probably most of your line that is more mature. As you know and as XYZ Company is experiencing, their marketing costs in the start-up and growth mode may be out of line with the expectations of a more mature product line.
  
  
• We understand that retailers try to turn every product into a commodity and exert pricing pressure on their suppliers accordingly. This product line seems to have enough uniqueness that it is able to avoid that commodity label. It seems to be more strategic to the stores that carry it. They are able to get some companion product pull through. It is also a product that provides that 'eco-friendly' halo effect. Buyers like solutions and if your product can be part of a solution, then buyers listen and pricing pressures are not as pronounced.
  
  
• This product currently is the market leader in a newly revived market. Because your competition can not provide it, you could have a new reason to approach chains that may carry Competitor A, Competitor B, Competitor C, etc. This product could be an effective door opener.
  
  
• You correctly observed by doing more of the component production yourselves, you could substantially improve the product line margins.
  
  
• The product could be easily integrated into your current line and current distribution systems with minor incremental costs.
  
  
• This looks like it could be a "strategic acquisition" in that it can easily achieve results well beyond the sum of its parts.
  
  

You may be asking yourself, does this actually do any good? Well, it depends.

If they have the feeling that they are the only buyer in the process and you are selling the company from a position of weakness, the counter efforts are largely ineffective. If, however, they have the impression that the aforementioned Competitor A, Competitor B, and Competitor C have been presented the same positioning, and have bought into one or two of the strategic arguments, then it really does work.

Try to send back your own not so subtle message:

• We know what we have.
  
  
• We understand the market and the competition.
  
  
• We understand the strategic implications of you or one of your competitors in control of our product line.
  
  
• We have other options besides you, so you might have to alter your expectations on how much you are willing to pay to become the ultimate buyer.
  
  

Plus, this helps the seller feel less like a punching bag and more like a worthy opponent.

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