Merger and acquisition hit a record high in 2015, with AB Inbev acquiring SABMiller for USD 120 billion in November 2015, contributing to the total of USD 5 trillion completed merger and acquisition. Analyst expect the hype to continue in 2016 as companies explore different methods to expand its business in this slow growing economy. In order words, this year might be a good time for investors to exit.
Acquisition is one of the exit strategies for investors whereby an acquiring company buys majority, if not all of the acquired company’s ownership in order to have power over the businesses of the acquired company. An acquisition can be paid in cash or by acquiring the majority of the stocks of a company, or a combination of both. Knowing that your company has great growth potential and is ready to exit, you may start to suss out interests and discover that many parties are keen to acquire your company. How should you negotiate the acquisition terms to achieve the best deal?
Review your company thoroughly and know your best price
Acquisition allows negotiation due to imperfect information. You will know more about your company than your acquirer. Other than knowing the value of the company, you should also be fully aware of the potential growth that can be translated into a premium acquisition price, or the future vulnerabilities that could potentially dampen the price. This will allow you to intelligently answer the acquirer’s questions during a negotiation, thereby clinching a better deal. When reviewing your company, determine an acceptable price range at the same time.
Use closed auction strategy
A very big advantage of closed auction strategy is that it is feasible even with only one acquirer. Since acquirers do not know the number or which other acquirers are bidding in this auction, they will put out their best price to ensure that they do not lose out on this great deal.
Be firm and defend the company’s position
The people who approach your company for acquisition are usually very experienced . If your company has great potential and you have more information about your company than the acquirers, you possess the negotiating power. From the very first meeting, make sure to assert your dominance.
If the idea of being firm against giants make you weak in the knees, think of the fairytale Instagram story. After being approached by Facebook and Google multiple times, Instagram finally accepted an acquisition deal with Facebook at a price of USD1 billion. While this sum might be only a fraction of the Vodafone Airtouch PLC and Mannesmann acquisition deal, it is still twice the market value of Instagram at the point of acquisition.