Negotiating Your Acquisition Deal

The difference between a good exit and a great exit often comes down to negotiation. Here's what I've learned from four successful exits.

Before You Start

Know Your Walk-Away Number Before entering negotiations, decide:

• Minimum acceptable price
• Required terms
• Deal breakers
• Alternative options (BATNA)

Understand Buyer Motivations Why do they want to acquire you?

• Strategic fit
• Technology acquisition
• Team acquisition
• Market share
• Eliminate competition

Understanding their "why" gives you leverage.

The LOI (Letter of Intent)

Key Terms to Negotiate:

1. Purchase Price

• Total consideration
• Cash vs. stock
• Earnout structure
• Working capital adjustment

2. Structure

• Asset sale vs. stock sale
• Tax implications
• Liability transfer
• Indemnification

3. Earnout Terms

• Metrics and targets
• Time period
• Control over operations
• Dispute resolution

4. Employment Terms

• Key employee retention
• Compensation packages
• Non-compete agreements
• Vesting schedules

5. Exclusivity Period

• Length (typically 30-60 days)
• Conditions for termination
• Ability to talk to other buyers

Negotiation Tactics

Create Competition Multiple interested buyers dramatically improve your position. Even if you have a preferred buyer, having alternatives gives you leverage.

Don't Negotiate Against Yourself When they ask "What's your price?", respond with "What are you prepared to offer?"

Focus on Total Value Don't fixate on purchase price alone. Consider:

• Cash at close
• Earnout probability
• Tax efficiency
• Employment terms
• Transition period

Use Time Wisely

• Don't rush decisions
• But don't drag out negotiations
• Momentum matters
• Strike while interest is high

Get Everything in Writing Verbal agreements mean nothing. Every concession should be documented.

Common Negotiation Points

Purchase Price Adjustments

Working Capital Buyer typically wants normalized working capital at close. Negotiate:

• Definition of normalized
• Adjustment mechanism
• Peg date
• Resolution process

Earnout Structure

Revenue-Based Pros: Easier to achieve Cons: Can be gamed

EBITDA-Based Pros: Aligns with profitability Cons: Buyer controls costs

Milestone-Based Pros: Clear targets Cons: May be outside your control

Earnout Best Practices:

• Keep it simple
• Short time period (1-2 years)
• Maintain operational control
• Clear dispute resolution
• Accelerate on acquisition

Indemnification

Cap: Typically 10-20% of purchase price Basket: $50K-$500K threshold Survival Period: 12-24 months (longer for tax/IP)

Representations and Warranties

• Financial statements accurate
• No undisclosed liabilities
• IP ownership clear
• Contracts valid
• Compliance with laws

Red Flags

Buyer Red Flags:

• Constantly changing terms
• Unreasonable due diligence requests
• Slow to respond
• Multiple rounds of "final" offers
• Unclear decision-making process

Deal Red Flags:

• Heavy earnout (>50% of value)
• Unrealistic earnout targets
• Loss of operational control
• Onerous employment terms
• Excessive indemnification

The Due Diligence Phase

Expect Requests For:

• 3+ years financial statements
• Customer contracts
• Employee agreements
• IP documentation
• Tax returns
• Legal documents
• Technical architecture
• Security audits

Due Diligence Tips:

• Organize everything upfront
• Respond quickly
• Be transparent
• Explain anomalies proactively
• Keep business running

Closing the Deal

Final Negotiations Expect buyer to:

• Request price reduction
• Find "issues" in due diligence
• Renegotiate terms
• Add conditions

Your Response:

• Stand firm on major terms
• Be flexible on minor points
• Document all changes
• Keep deal momentum

Closing Documents:

• Purchase agreement
• Bill of sale
• Employment agreements
• Non-compete agreements
• Escrow agreement
• Transition services agreement

Post-Close

Earnout Period

• Maintain good relationship
• Document everything
• Track metrics carefully
• Communicate regularly
• Resolve issues quickly

Integration

• Support the transition
• Help with customer retention
• Train new team
• Be professional
• Protect your reputation

Lessons Learned

1. Don't Fall in Love with the Deal Be prepared to walk away. The best negotiators are willing to say no.

2. Use Advisors Hire experienced M&A attorney and accountant. They've seen every trick.

3. Think Long-Term Your reputation matters. Don't burn bridges over small points.

4. Trust Your Gut If something feels wrong, it probably is. Don't ignore red flags.

The best deals are win-win. Focus on creating value for both sides, negotiate firmly but fairly, and protect your downside.