Negotiating the purchase of a commercial asset is complex process, simply because there’s so much to think about – including how much payment is right for the asset, whether the yield is comparable with the wider market, whether the property has tenancy already and the lease terms.
1. Get ready for Negotiations
To effectively get ready for negotiations on the price, sellers need to set up their arguments in regards to desires. We unequivocally advise that you bring a professional negotiator. You will only win your negotiations in the event that you have people with you who have as of now been part of these sorts of transactions. It would be naive to think little of the purchaser’s site. Keep in mind that you will probably be negotiating with individuals who have done this professionally for a few years.
Discover ahead of time what number of individuals will partake in the negotiations for the buyer, and what positions they hold within the organisation. It is prudent that you bring a pretty nearly equivalent number of members. It is not recommended to negotiate alone. This poses too great a risk of a psychological breakdown. Keep in mind that you will probably be arranging with individuals who have done this professionally for a few years.
Commercial Property Negotiations are better held on neutral ground or your own particular place of business. By no means should you consent to arrange at the purchaser’s place of business. The truth is that once the buyer’s delegates have traveled together and landed at the discussions, they are unlikely to depart without coming to an agreement. Then again, on the off chance that they are at “home”, your party will be at a disadvantage as soon as you have arrived.
The roles of all members ought to be practiced a few times before the formal process starts, including question and answer sessions. This will be of incredible help to you.
Keep in mind to thoroughly document the agreed upon date, since the letter of intent (LOI) will be drawn up on the basis of the agreement.
2. The Structure of the Transaction
In preparing for the negotiations, sellers must focus on themselves a sensible valuation, as well as a worthy structure for the transaction. Specifically, it is paramount to consider the maximum length of the transaction period (if any), the payment schedule, rights of former owners during the transition period, and other critical focuses. Experienced advisors should be able to have the capacity to help the holders consider all conceivable choices, and to define a strategy for the transactions. A straightforward case may have the managers consenting to a more extended transaction period in exchange for a larger sum of total payments.
3. Concluding the Real Estate Deal Structuring
If you are able to reach this stage of the process, then your company is likely to be bought. However, there is one last important step for you to go through.
After the completion of the audit of the company (due diligence), the buyer is completely mindful of the genuine circumstance at the selling company. This negates the initial advantage of the sellers. The cost of the proper due diligence procedure is for the most part moderately high, so the buyer is more interested than ever in closing the deal.
At the deal structuring, the buyer’s representative that assumed the part of the “good cops” leave the scene under the pretext that there are just little things left to be hashed by the lawyers. All of a sudden, the sellers confront a totally new negotiation team that could be described as the “bad cop”. This is a typical psychological ploy and the sellers should not be surprised.
We firmly suggest at this stage enlisting a skilled legal advisor with involvement in these sorts of negotiations
This is a moment when not having a qualified legal advisor will leave you not able to protect your rights. If the sellers are employing investment bankers, the bankers ought to have the capacity to recommend lawyers for you to hire. In no case should you hire lawyers that do not specialize in these types of transactions! Typically general legal advisors with no experience in this type of transactions do more harm than good, esp in M&A deals. Additionally, we suggest hiring the lawyers on a fixed fee basis and avoiding hourly rate charge.
4. Final Set of Documentation for the Purchase of the Company
By and large, the buyer side readies the final draft of the agreement to buy the company. Large corporations almost never cede legal initiative.
The conditions depicted in the first version of the drafted final documents will normally give the seller a slight shock. Quite often, all the concessions of the seller are precisely reported, yet the concessions of the buyer are “overlooked”. As the buyer’s representative team has totally changed, sellers feel deceived. This circumstance is at times exacerbated by the way that the seller may have effectively “dismissed” their consultants as “unnecessary”, or their counsels, feeling the quick finish of the deal structuring, push the seller to sign the documents (sadly the dreadful reality of investment banking business). In many large and medium-sized investment banks, the investment bankers frequently deliberately attempt to suit the buyer’s lawyers since the bankers representing the seller already counts on the success fee and have limited incentives to stay tough with the buyer.
It is imperative to recollect that verbal agreements not particularly specified in the last version of the documents do actually exist, regardless of how others are attempting to persuade you otherwise. No oral confirmations, messages, or telephone as regards this matter should to be taken as sufficient. Take a hard line and demand that on a change of conditions that is suitable and gainful for you. Often, sellers are put under time weight; for instance, purchasers will say that “it is important to close the deal before the end of the financial year or not at all”. This is improbable. It is imperative to demonstrate that your party is ready to take a reprieve, or ever considering getting out of the negotiations.
Because the moment of valuation (see the section on Letters of Intent) often happens more than six prior months to the signing of the final documents, you must address the adjustments related to the change of the financial position of the company that may have happened since the LOI. In the event that the transaction is organized with a transitional period, the final version should precisely prescribe the rights of former owners during the transition period. If the previous owners keep on running the organization as employees, it is critical to agree on the terms of the employment contracts.
How Brickstone Can Help?
Brickstone is a Research-based Advisory, Development Management and Asset Management firm helping Sponsors of Large Scale Asset-backed projects with the overall objective of ensuring the “bankability” and protection of the long term asset value of these projects.
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Our specialist Project Finance Team will help build tailored financial models conducting analysis thereof in conjunction with our Economic and Market Research Experts. This provides your clients with precise bankable projections calculating all the capital investment requirements, the cash flow analysis and the rate of returns for these developments.