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The Reliable Negotiation Principles in M&A (Part. 1)

Getting people to say “yes” involves mastering the negotiation game to achieve your goals.

Negotiation operates on two distinct levels:

  • The first level covers the tangible part of the deal, like price, terms, and conditions.

  • The second level deals with the rules and methods of conducting the first level of negotiation.

This second level, often called the “meta-game,” is a negotiation about the negotiation process.

Understanding this meta-game is important because it allows people to focus on what truly matters, especially in complex, high-stakes transactions like M&A.

The international bestseller Getting to Yes by Roger Fisher and William Ury, published in 1981 and re-edited three times, offers timeless principles that shape the meta-game of negotiations. You’ve probably seen all the concepts in this book before.

What’s powerful about it is the way it organizes these principles into frameworks to getting to “yes” consistently.

The power of these frameworks is perfectly depicted in the corporate lawyer TV show Suits, in which

Harvey Specter always uses his deep understanding and mastery of the negotiation meta-game to get what he wants from people with conflicting interests.

Today, I’m sharing the lessons and takeaways from Getting to Yes that are particularly relevant in an M&A context, with specific, real-life examples regarding the negotiation dynamics around valuation.

Don’t Bargain Over Position

Positional bargaining is the most common form of negotiation meta-game.

Each side takes a position, argues for it, and makes concessions to reach a compromise. While taking positions serves useful purposes in negotiation, in high-stakes situations, it often leads to a rash agreement, done inefficiently, and filled with regrets. Indeed:

  • Rash Agreement: The more you stick to and defend your position, the more you care about “saving face” instead of finding options that benefit both sides.

  • Inefficiently: By starting with an extreme position and sticking to it while making small concessions only to keep the negotiation going, you increase the time, cost, and risk of not reaching an agreement.

  • Regrets: Positional bargaining becomes a contest of will where both sides try to make the other side bend. This usually leads to anger and resentment if an agreement is reached.

In M&A, valuation expectations are often based on subjective factors such as :

  • the years, efforts, and sacrifices put into the business

  • historical post-money valuations and liquidation preferences

  • the need to justify realized investments to LPs.

The common meta-game for a seller is to defend the valuation based on the strategic value a buyer will get from the deal. This leads to a positional bargaining where:

  • The seller claims the valuation is fair because of the ROI outlined in the synergetic business plan.

  • The buyer insists that a fair valuation should be based on the asset's current value rather than on the future benefits he expects to receive.

This usually ends in a no-deal or, if a deal is reached, everyone is too irritated to consider a closing dinner.

Insist on Using Objective Standard

In M&A, a seller and a buyer have conflicting interests by nature: A seller wants a high price, and the buyer wants a low price.

Instead of using inefficient positional bargaining, the authors recommend inviting us playing the meta-game of fairness.

Fairness is characterized by criteria independent of the will of either side. The more you bring a standard of fairness, the more likely you are to produce a wise agreement, efficiently, and amicably.


  • Wise Agreement: When agreements align with established norms and practices, it builds trust among the parties, as they know the agreement is grounded in recognized standards.

  • Efficiently: Approaching agreement through discussion of objective criteria reduces the number of commitments each side must make and unmake as they move toward agreement, streamlining the negotiation process.

  • Amicably: Disagreements are much easier to handle when both sides focus on objective standards rather than trying to force the other to back down.

Simply, resolving the common buyer-seller conflict involves agreeing on the objective standards that will result in the fairest valuation.

There are usually several objective standards to choose from, and understanding their development and history helps argue for the most appropriate one. Typically, one standard will be more persuasive if it is directly relevant and widely accepted.

In M&A, valuation is defined by two standards:

  • Reference Metrics: Revenues, ARR, gross margin, cash EBITDA, etc.

  • Multiples Applied: The multiplier used on the reference metrics.

Negotiation involves determining the fairest reference metrics and then setting the fairest multiples.

For example, we met a software company whose valuation was driven by the sentimental value of 15 years of dedication from the founders and the investors’ liquidity goal for securing his next funds. This expectation translated into a valuation based on 3,5x ARR or 22x cash EBITDA.

For a software company with a €10 million revenue, the typical reference metrics are ARR or cash EBITDA. Widely accepted multiples for a low-growth company of this size are 3–5x ARR and 12–16x cash EBITDA.

In this context, ARR is more appropriate for meeting the company’s valuation expectations because it fits within the widely accepted multiples range. However, due to the low-growth nature of the business, cash EBITDA is the commonly used standard.

So, the challenge here is to persuade other sides that using the ARR standard is fair, while community practices indicate cash EBITDA.

Persuasion relies on negotiation power, and the book provides timeless principles to enhance it.

Worsen the other side’s attractiveness of walking away

In M&A, buyers often believe they hold a stronger bargaining position and are usually right.

I’ve written before that sell-side M&A is about disrupting the other side’s status quo.

M&A one of the riskiest activities a buyer can perform due to the financial commitment, integration resources required, and potential ROI, which often materializes in the mid-to-long term. Therefore, buyers tend to play it safe by staying the same.

The low-risk nature of the status quo is what gives power to buyers.

In response to power, the authors recommend developing attractive alternatives to protect us from accepting an offer from positional bargaining and making the most of our assets.

Indeed, the relative negotiating power of two parties depends primarily upon how attractive each party finds the option of not reaching an agreement—this notion refers to the Best Alternative To a Negotiated

Agreement or BATNA.

In M&A, when an interested buyer is engaged, the BATNA can determine whether an agreement is reached and whether the outcome is favorable or merely acceptable.

Revealing the consequences of a BATNA to an engaged buyer can shift the negotiation power. Typical sellers’ BATNA consequences for buyers include:

  • Losing the chance to buy the company now as management wants to focus on building the business.

  • Missing the opportunity to buy the company at X when it could be valued at 5X in five years as financial sponsors are keen to close the deal.

  • Losing the chance to buy the company forever as another party is eager to make the deal.

However, the power shift depends on how these consequences affect the buyer’s status quo.

As a seller, we often overestimate the strength of their BATNA compared to the buyer’s alternatives. In reality, our negotiating power increases by making the buyer’s BATNA less attractive. The more we know about the buyer’s options, the better we can negotiate. In other words, the aim is to leverage the pain of the status quo with our BATNA.

We applied this principle for our low-growth software company when an engaged buyer tried to use its bargaining power to persuade us about the fairness of the EBITDA standards. At one point, we revealed that two of his competitors from another region had made offers based on the ARR standard. This made the status quo much less appealing for the buyer, as it implied increased future competition. Ultimately, we secured a 5x ARR offer from this buyer, who was happy to pay it to keep the competition at bay.

We apply this principle to our low-growth software company when an engaged buyer starts using its bargaining power to persuade us about the fairness of the EBITDA standards.

At one point, we revealed that two of his competitors from another region had made offers based on the ARR standard. This made the status quo much less appealing for the buyer, as it implied increased future competition.

In the end, we obtained a 5x ARR offer from this buyer, and he was happy to pay it as it meant for him to keep competition at bay.

Efforts to improve your own alternatives and reduce the other side’s perception of theirs are crucial to boosting negotiating power, especially up to the LOI phase.

However, this effect diminishes from the LOI phase to closing as new dynamics emerge, requiring different strategies to be discussed in a future piece.

Thanks for reading!

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