Three Big Things

What are your non-negotiables?

An advisor asked me this, early in my sale process.

I didn't have a clear answer – I just wanted the best price, on the best possible terms. Isn't that obvious?!

But when you decide to sell your company, you need to define a handful of areas where you will not concede.

These are your 'Big Things' that matter in your negotiation.

Three is somewhat arbitrary. For some sellers it may just be one, but if you have a complicated deal and complex requirements it might be 4 or 5.

In any case, it should be a small number of matters that you really care about. So much, that if the buyer will not meet you on those terms, you would rather walk away.

Why does this matter? Because if you focus on everything, you focus on nothing.

Deals get complex (the average sale contract is close to 100 pages long) and deal fatigue really kicks in. You might be tempted to concede to just get the damn thing done.

Having a short list of non-negotiables will help you to stay stubborn where it matters most, so you end up agreeing a deal you're happy with.

Examples of 'Three Big Things'

Everyone's list will differ, of course. This is highly personal, and depends mostly on your reasons for selling, the context of the business and whether you plan to stay on post-sale.

But as an idea starter, here are some examples of what could make your list:

• Price. The obvious one! This might be the amount overall, or often the minimum upfront payment.
• Payment form. You might insist on cash, rather than stock in the buyer. This is often buyer-specific (if they are listed you might be open to shares, but insist on cash if there is not market for their stock).
• Structure. You might want a total, 100% sale, or you might want to only sell part of your stake to keep some upside for the future. Either way, you tend to want to fix a structure. (See more in Exploring five M&A deal structures)
• Post-deal involvement. Some sellers want no involvement so they can retire with a clean break, others might need to stay involved.
• Post-deal control. If there's a large Earnout, you might want to insist on control of the running of the business, or commitments from buyer around collaboration or investment.
• Treatment of team. You might want to protect jobs for some of your team.
• Liability. It's common to want to limit your liability for certain issues after the sale is completed, so you know your payment is 'free and clear'.

Sharing with the buyer

Should you share your list with the buyer?

You will read conflicting advice on this. Some people will tell you not to give away your negotiating strategy, and to 'keep your cards close to your chest'.

My view is that it's helpful to let them know where you stand on your key areas.

That follows the general advice of transparency and openness (remember, You are on same team as your buyer), and helps to build trust and streamline negotiations.

After all, if they will definitely not meet one of your non-negotiables, you would rather know that up front.

The exception might be the price – it's generally not a good idea to share specific numbers here.

This can be done in a collaborative and non-confrontational way. For example:

"I would like to make one thing clear from my side. I am only selling because I am ready to retire and want to spend time with my family. I want a buyer who can offer me clean break from the business, and the most I can give you is 20 hours a week of consulting for three months during a handover period."

This is best done during the negotiation of the Letter of Intent, as this is when the key parameters of the deal are fleshed out – price, structure, earnout and your post-deal role.

The other benefit of sharing is that you can then ask the buyer what their Three Big Things are. That will help you to understand what you might need to concede, and see if there's good alignment. Hopefully these are all things you are happy to give up – then you have a Win-Win situation.

What about other points?

The corollary of picking areas of focus is this: If it's not in your Three Big Things, then you should accept giving up some ground on those areas.

It can be helpful to make these concessions if you're trading them for things that you care much more about. You can't fight every point, and being a little more easy going on some areas really helps the deal move quickly.

Of course, don’t give these points too easily – you should be seen to be begrudgingly giving them up, and trading them for your Three Big Things. And don't accept terms that are wildly against you even if they are not areas of focus.

Ultimately, the test is this – if you got your Three Big Things in full but had to concede on all other points (within reason), you should be happy to take the deal.

My personal Three Big Things

Here's my personal experience when I sold my company.

I actually had just two areas of focus.

Firstly, there was a minimum amount that I wanted the sellers to receive upfront. That meant my early investors got a fair return, and my co-Founder and I hit our walk-away number. I didn't give the seller this number, but we knew we would not accept a deal below this amount.

Secondly, we wanted to limit our contractual liability. There wasn't a specific issue I was worried about, but I knew I would struggle to move on and spend the money if I thought it could all (or mostly) get clawed back.

In return, the buyer was insistent that my co-Founder and I stay on after the deal, which we were happy to do. They set challenging parameters for the earnout, but that was fine as long as the upfront payment was met.

On reflection, being clear on what we needed from the deal was critical in getting a deal done that worked for both parties.