M&A: Negotiating the Deal

>> Mergers and acquisitions are really no different than trying to find the perfect spouse once you've done your due diligence or your

dating it's time for negotiations.

>> Alan: A proposed merger or acquisition, it's the start of a relationship between two firms and needs to be managed carefully to ensure that

the relationship starts on the right foot and stays there.

>> Alan J. Smith, President of the Bay Pacific Group, a firm that facilitates mergers and acquisitions, walks us through the crucial

steps of an M&A transaction.

>> Alan: M&A negotiations occur on several levels the financial, the documentation, due diligence areas which in include the acquisition agreement,

purchase price, reps and warranties, indemnification, employee contracts, it goes on and on. Then there's the relationship level meaning

that's how the parties interact with one another and that can be just as important as the contracts themselves.

>> Okay, I stand firm on this we can't waiver on this.

>> Alan: The majority of M&A deals start with a proposal to merge two existing companies into one or for one of the companies to outright

acquire the other company. In an acquisition the acquiring company will typically submit a bid that's somewhat below what they

anticipate it'll take to get the deal done because they know that that price is eventually gonna be negotiated. At this point the target

company has several different options, one, they can simply attempt to negotiate.

>> Well, I think you have made a very generous offer but I think we are worth more than that.

>> Alan: Two, they might even consider adopting a poison pill and this situation is when the target company really does not want to be

acquired. To inaudible this defense in this situation the target company grants all the share holders except the hostile acquiring

company options to buy additional stock at a dramatic discount; this dilutes the acquiring company's share and intercepts control of

the company. Third, they might find a white knight the target company's management may seek out a firm leader potential acquiring

company or, again, the white knight and if a white knight's found they'll typically offer at least an equal and generally a higher

price than the shares that the hostile bidder is proposing. Four, might just accept the terms of the offer as is and if the target

company's top managers are happy with the terms of the transaction they'll go ahead with the deal.

>> The price is right; I think we have a deal.

>> Alright

>> Alan: Finally, once the target company agrees to the tender offer and regulatory requirements are met the merger or the acquisition

deal will be executed by some means of a transaction. In a straight-forward acquisition where one company buys another the acquiring

company will typically pay for the target company's shares with cash, stock or some combination of the two. At this point the companies

are officially in due diligence negotiations and they can begin drafting the ominous paperwork.

>> No, really, everything looks clearly defined so I'll just go ahead and start the draft for us.

>> Alan: One important note about M&A contracts, try to be the party that drafts the contract.

>> Let me do it.

>> No, really, it's okay I can do it.

>> I insist.

>> No, really, you have so much on your plate I --

>> Not a problem.

>> Alan: In doing so you'll be setting the tone for the negotiations and that's really a critical part of the process. If there's

any major revisions or provisions to be had consider making them at the meeting where you can best express your views and rational.

>> Ya know, my company has to --

>> Alan: Which brings us to the relationship level, during the days, weeks and sometimes months of an M&A negotiation process you've

got to be very careful and tactful in your approach.

>> Can we agree on the fact that there's no vacation in the first year and that it kicks in for the second year?

>> No that is impossible my workforce will never go for that, it will cause a revolution.

>> Alan: Remember, you're beginning a relationship and how you behave during the negotiation will have a lasting impact on that relationship

just like in real life.

>> Talk to me when you're ready to really seriously negotiate.

>> Alan: Don't use pressure tactics and give the target company time to come around.

>> Look, you don't need to give me an answer right now just sleep on it for a couple of days and let me know what you think.

>> Alan: Focus on the future rather than the demands and concessions at the present time. I'd highly recommend that you study the

culture of the other company beforehand and negotiate with that knowledge in mind.

>> You're too kind to provide us with such hospitality.

>> Ah, don't mention it, it is our pleasure, really.

>> Alan: This will help you not only avoid unconsciously offending the other company it may even win you some kudos. Finally, remember

that it's not over until it's over meaning that negotiations continue until the contract is signed.

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