In the past, an M&A transaction was almost universally considered a “merger” of two neighboring companies, often of roughly equivalent size and stature. If a contract negotiation was needed during these deals, the negotiating parties were typically dealing with each other as equals: one company will have no more leverage than its counterpart does.
This has changed dramatically as technology start-ups have become major acquisition targets for larger enterprises whose purchases are now driven by their own boards and investors rather than long-term strategies or considerations of what is best for the target company’s customers — or even its employees.
Often, a deal will be consummated without much talk about contracts. In such cases, a very small in-house M&A team may be tasked with the job of negotiating a contract before the transaction is fully closed. However, it’s an increasingly common trend that many transactions now satisfy the “buyer’s imperative” and are closed before any contractual discussions occur at all.
In these cases, an M&A consultant or attorney needs to be involved early in the process to anticipate potential issues and facilitate meetings between buyer and seller to resolve them so that a binding contract can be executed for all investors. The consultant must be proactive and work with the company’s leadership, so they understand what they are agreeing to in a contract before it is too late.
Contract negotiation can be defined as “the process or act of reaching mutually agreeable terms upon which a contract may be made between parties who have had little or no previous contact with each other. Sometimes, contract negotiation is referred to as a meeting of minds.” If a company lacks adequate knowledge in the area of contract negotiations, they are advised to bring in advisors, attorneys or look to Fintalent’s pool of Contract Negotiation consultants to guide them through a process that is notoriously hard for both the buyer and seller.
It is important for the buyer and seller to have an agreement on price, terms, and conditions. The deal has to get done so these agreements have to be set. Having accurate information helps everyone in the transaction make good decisions about what each side needs. Having disputed contracts can cost time and money for all parties involved in a transaction; both legal fees, as well as time spent by experts reviewing contracts so that everything is clear from the outset. If a lot of time is spent in the process, some losses may occur. When there is uncertainty about what the other party desires, it can make negotiations more time-consuming and expensive. When parties are unsure about each other’s goals and objectives, it can lead to mistrust between parties during contract negotiations.
When negotiating a contract, there are some key components to consider.
I. Contract Format
II. Specifications of the Contract
III. Processes for Negotiations
IV. Offer Requirements
V. Terms of Payment
VI. Other Considerations
VII. Conclusion and Next Steps
When negotiating a contract, there are some key components to consider. This post will cover these elements and provide you with some tips for successful negotiation in M&A transactions.
II. Specifications of the Contract [to consider during contract negotiation] – this is important because it sets the contract parameters and defines what’s important to achieve between the parties (e.g., terms of payment, rights, obligations).
– this is important because it sets the contract parameters and defines what’s important to achieve between the parties (e.g., terms of payment, rights, obligations).
III. Processes for Negotiations [to consider during contract negotiation] – this is important because it establishes how negotiations will occur and how the relationship of trust will develop between the two parties (e.g., how long will the process last).
IV. Offer Requirements [to consider during contract negotiation] – this is important because it is defined as what parties have to agree on before completion (e.g., valuation, exclusions from liability, other proposals from competitors).
V. Terms of Payment [to consider during contract negotiation] – this is important because it defines how the parties will be paid and the terms of payment that they will receive.
VI. Other Considerations [to consider during contract negotiation] – this is important because there are other considerations that need to be addressed in order to provide security for both parties (e.g., warranties, indemnifications, product claims).
VII. Conclusion and Next Steps [to consider during contract negotiation] – this is important because it allows for a true end to negotiations and final agreement between the two parties (e.g. signing of the contract, negotiation reminders).
II. Contract Format – this is important because it establishes the format of the deliverables and processes that need to be followed in order to achieve partnership between both parties (e.g., term length, delivery deadlines, other deliverables).
III. Specifications of the Contract – this is important because it sets the format and specifications for deliverables and processes that need to be followed in order to achieve partnership between both parties (e.g., term length, delivery deadlines, other deliverables).
IV. Processes for Negotiations – this is important because it defines how negotiations will occur (e.g. how long will the process last, frequency of meetings, when and where to meet).
V. Offer Requirements – this is important because it establishes what parties have to agree on before completion (e.g., valuation, exclusions from liability, other proposals from competitors).
VI. Terms of Payment – this is important because it defines how the parties will be paid and the terms of payment that they will receive.
VII. Other Considerations – this is important because there are other considerations that need to be addressed in order to provide security for both parties (e.g., warranties, indemnifications, product claims).
VIII. Conclusion and Next Steps – this is important because it allows for a true end to negotiations and final agreement between the two parties (e.g. signing of the contract, negotiation reminders).
