Negotiating and closing transaction, Financial Management

Negotiating and Closing Transaction:

A diverse set of skills and very thorough preparation is required for negotiating and closing a divestiture transaction. Facts and information alone are not sufficient for the purpose. A good negotiator knows when to be tough and when to be flexible on a specific point. The objective of good negotiators is to maximize price and optimize the deal structure:

Preparing for Negotiations: Prior to initiating negotiations, the negotiating team should identify all the major points that are to be discussed and should evaluate these in the context of the overall objective of the divestiture. The team should prepare the opening position, preferred position, fallback position and the deal breakers for each point in the negotiation.

Before beginning the negotiations, a role-play of the forthcoming negotiations will facilitate identifying the weaknesses in the positions established for each point and enable the members of the negotiating team to polish their roles.

Conducting the Negotiations: There are several steps involved in actual negotiations. The first step deals with reaching an agreement in principle. This process may result in a term sheet, which is used as a basis for negotiation and preparation of the definitive purchase agreement or may simply result in the parties agreeing to sign a formal agreement in principle once all major points pertaining to the negotiation are believed to be resolved.

Due Diligence Examinations: After having reached a consensus and documenting an agreement on the major points of the transaction, the purchaser expects to conduct a due diligence examination of appropriate books, records, and facilities of the business to verify the financial statement and other information. Any kind of misrepresentation, if discovered by the purchaser, can void the agreement or cause renegotiations of the price and deal structure.

The Purchase Agreement: The next step involves the preparation of the definitive purchase agreement and any supplementary agreements that may be required. The process involves numerous drafts and revisions prior to the closing. Preparation of agreements and the closing documents is greatly facilitated if the divestiture is planned well by the selling corporation and both the parties in good faith negotiate the business issues.

Closing the Transaction: Usually, closing of a transaction involves signing of agreements, exchanging of the proceeds of the transaction, and may be a glass of champagne to celebrate the success of the deal. It is however essential to observe caution. To quote Yogi Berra, "It ain't over ‘till it's over." Simply speaking, a seller can never relax until the documents are signed and proceeds change hands. A high level of confidence after reaching an agreement in principle is a sure signal for disaster. A feeling of comfort about the last draft of the purchase agreement can result in great disappointment, and if there is insufficient attention to detail while preparing the closing documents, it can lead to deferred closing of the deal, or worse, no closing at all.

 

Posted Date: 9/11/2012 5:49:40 AM | Location : United States







Related Discussions:- Negotiating and closing transaction, Assignment Help, Ask Question on Negotiating and closing transaction, Get Answer, Expert's Help, Negotiating and closing transaction Discussions

Write discussion on Negotiating and closing transaction
Your posts are moderated
Related Questions
Are there any legal factors which could restrict a corporation in its effort to pay cash dividends to common stockholders?  Explain. A firm might be legally restricted as to the

PRC Company, a retailer of baby clothes and toys, has been in existence for 20 years. Its approach to strategy has tended to be informal and emergent rather than planned. However,

What is risk free rate of return There is a 'risk free rate of return' (also known as time preference rate) which is used to compensate for the loss of not being able to invest


What are retained earnings?  Why are they important? Retained earnings denote the sum of all the earnings obtainable to common stockholders of a business throughout its whole h

Investors are always interested in estimating the price sensitivity of a bond to change in market interest rates. Let us study how prices change both in terms of

The option features embedded in many bonds and fixed-income securities have made the binomial interest rate tree approach a valuable model for pricing debt. Binomial

A company has the opportunity to sell an old machine. The machine is fully depreciated to a zero book value but could be sold for $5,000. If the company did not sell the machine, i

For capital budgeting decision which cost is relevant For capital budgeting decision, composite cost of capital is comparatively more relevant albeit the firm may finance one p

The issuer offers bonds with an option to the investor to convert these bonds into equity shares at a pre-fixed ratio. These can be fully convertible bonds or partly co