Recently I was negotiating a $90 million M&A transaction representing the sell side for an Asian client with unique mobile technology, an excellent management team and blue-chip customers. The valuation was agreed upon by both sides, but many other critical transaction terms remained open.
Accelerate Speed to Close
To accelerate the speed to close, I proposed a negotiation session based on the market terms that I presented in Google Sheets. Based on my 25+ years of experience in M&A as a corporate lawyer and investment banker, I proposed terms that were within the range of market terms. The negotiation on terms was conducted prior to the lawyers being involved in the transaction.
Negotiate Terms in Google Sheets
My client was in Asia, the buyer was in Asia and I was in New York, so Google Sheets was the optimal format to negotiate the terms since the deal team members, regardless of location, had access to the Google Sheets.
The negotiation session took only three hours and the negotiated final position in Google Sheets was reflected in the Letter of Intent by the lawyers later in the transaction.
The Five Advantages of This Approach
The five advantages of this approach are:
- It speeds up the transaction, since less time is spent going back and forth on basic issues such as the indemnity escrow period.
- It lowers the legal expenses, since the lawyers on both sides do not need to negotiate relatively simple issues and can save their firepower for more complex issues.
- Key issues, such as working capital, audited financials, and employment terms are addressed early in the transaction, which prevents any misunderstandings later.
- Google Sheets, or other shareable documents, can be accessed by team members anywhere on the globe and can be shared with new team members later, i.e. the lawyers on the transaction.
- Finally, the buyer and the seller cannot backtrack on the final position, since both parties’ final position is memorialized in Google Sheets.
While the negotiated terms will vary depending on the leverage of the buyer and the seller, the market terms have a relatively standard range.
Market Terms for Key M&A Issues
Below are the key M&A issues, the seller’s proposal, the buyer’s response and the final position. The final position closely mirrors the market position for such terms in the current M&A market.
Focus Early on Key Issues
It is helpful to focus early on key issues in a transaction in order to prevent any road blocks later. Key issues that should be negotiated early include: (i) the method of the working capital calculations, (ii) whether fully audited financials will be required or a review of year-to-date financials will be sufficient and (iii) submission by the buyer of key management employment terms.
Note that the call / put option of 20% of the purchase price in 3 years is common in European and Asian transactions. Transactions in the United States tend to use an earnout model in which annual earnout goals are agreed to by both parties and the seller is typically paid on an annual basis (see Ascento Capital Smart M&A Series #3: Structuring Effective Earnouts).
While each M&A transaction is unique, knowledge of the current market terms and the negotiation of key terms early in a transaction on Google Sheets can accelerate speed to close.