The Art of Negotiating a Deal
Negotiation skills can be the difference between a good deal and a bad one. In business, this may mean more than just lost opportunities, it could result in losing money. Being a good negotiator or having good negotiators on your team facilitates the deal closing process.
When negotiating complex agreements, it is crucial to go in with a strategy, process, tools and tactics to help achieve your stakeholders’ most important needs. Most of a deal’s key business terms are negotiated at the term-sheet phase because of the stakeholder’s high interest. Typically, in the context of credit facilities, these negotiations center around critical deal points such as interest and advance rates, facility amounts, and financial and negative covenants which set expected performance levels during the term of the loan. There may be times when you face non-negotiables. Usually, the best way address a non-negotiable deal point is to have a reason behind it instead of just drawing a line in the sand without any support for your position. Using sound reasoning will often diffuse a tense negotiation that may otherwise be viewed as a “take it or leave it” stance.
Engaging capable counsel from the onset is essential when it comes to negotiating business transactions. It is likely that your counsel has seen and negotiated similar transactions and is able to discern whether certain deal points are standard in the market or not. In addition, your counsel should be able to point out ambiguities and other positions that may be open to various interpretations, so that these aspects of the deal can be negotiated up front, rather than have a court decide how they should be interpreted. I’ve seen it too many times where both sides think they know how certain clauses are to be interpreted, albeit both differently.
Unfortunately, sometimes deals fall apart during documentation. This could be due to a change in market conditions, new items discovered during due diligence, or just an inability to agree on certain material deal terms. At Vion, due to the speed of our transactions, we often go straight to documentation before all the deal terms are fully negotiated and conduct our due diligence concurrently. Unfortunately, diligence items arise that may cause our deal negotiations to breakdown. The breakdown is usually not because of the negotiation of the legal documents; rather more often, it is because there was new or additional information discovered in due diligence.
Larry David once said in an episode of his show “Curb Your Enthusiasm” “I know, look, listen, you’re unhappy, I’m unhappy too. That’s what a good compromise is all about. A good compromise is when both parties are dissatisfied, and I think that is what we have here.” I think that deal negotiations are the same way. Negotiations should not be viewed as a winner take all endeavor, nor should every negotiation end up splitting every point right down the middle. The negotiation process should enable each side to feel like they didn’t get everything they wanted but all of what they needed. It allows you to compromise or reach an agreement while hopefully avoiding arguments and disputes. If a good negotiation occurs, you will be able to resolve conflicts and create contract value. It can also help prevent future problems or conflicts by clearly defining expectations. Always remember, a good negotiation is one where you have protected your side’s interest while achieving the goal of completing a transaction.