Reasons mergers and acquisitions fall apart
Reasons mergers and acquisitions fall apart
Deal fatigue refers to a condition during negotiations where parties on either side of the negotiation begin to feel frustrated, helpless and exhausted with the unending negotiation process. Sometimes, members of negotiating teams tend to experience the feeling of giving up either due to the endless negotiations or failure to reach a consensus.
Deal fatigue is common in mergers and acquisitions where parties tend to become adamant in compromising their proposals, which prolongs the negotiation process. As a result, the parties may want to resign or exit the negotiation teams and focus on other more fulfilling tasks.
The end result of deal fatigue is often different and less beneficial than what the negotiating teams hoped for at the beginning. For example, negotiations may be abruptly abandoned because the parties are exhausted. In a negotiation where one party feels disadvantaged, the parties become involved in a bitter exchange of words and lose the gains already made in the negotiations. If parties in a negotiation experience deal fatigue, deal advisors should intervene to help parties negotiate without losing patience and work towards achieving a win-win outcome.
The following are some of the common causes of deal fatigue in business negotiations:
Sometimes, negotiations may keep moving from one step to another without adopting a clear timeline when it will end. It mostly occurs when there is no consensus on the timelines of the negotiations from the start, and parties are moving from one step to another without making any progress.
The prolonged negotiations may also be caused by miscommunicated requirements and objectives, frequent proposal alterations, and changing team leaders. As a result, negotiations may end prematurely as the parties become exhausted of being involved in an unending process without a clear foundation.
In negotiations that require technical expertise, the absence of subject matter experts may cause deal fatigue among participants. Negotiating parties will perceive that they are handling something that they do not completely understand and continuing to participate in such discussions will only frustrate them even more.
For example, in negotiations for the acquisition of a healthcare company, the negotiations would require the involvement of experts such as business valuation specialists, healthcare specialists, specialist attorneys and investment bankers. The absence of any of these subject matter experts will complicate the process and prolong the negotiations.
Proper negotiations require that all parties on either side disclose all material information that will help in getting a win-win outcome. However, some buyers and sellers may underestimate or give incomplete critical information either knowingly or unknowingly. As a result, negotiations will take longer and create an atmosphere of distrust when the other party discovers foul play in the negotiations.
For negotiations that take longer to complete, any significant events or circumstances will affect the duration of the talks. Some of the conditions include loss of key customers, the exit of key employees, profit warnings, lawsuits against the company, and failure to achieve sales targets.
When such conditions arise, some buyers who were interested in the negotiations may change their terms or pull out of the negotiation even when they were at an advanced stage. It means that the deal process will take longer than expected, and the parties will be fatigued.
Deal fatigue may lead to the following:
Deal fatigue may result in either the seller or buyer compromising on their initial terms as a way of moving the deal process forward. It means that the seller or buyer will need to agree on a lower price than they initially anticipated.
Where negotiating parties fail to agree on certain issues, the deal process may be terminated prematurely without a winner. It may occur when neither the buyer or seller is willing to lower their price expectations to move the deal process forward.
Deal fatigue often results in premature termination of negotiations because the parties are frustrated by the pace and complex nature of the negotiations. Here are some of the ways that parties can use to mitigate deal fatigue:
The first step in avoiding deal fatigue during negotiations is to name a dedicated project manager who will be tasked with coordinating meetings and task lists. It means that project manager will follow up to see how far the parties have gone in achieving specific task lists and action points at a given time. Tracking the task lists will keep the parties focused on delivering the next item on the list and know how far they are into the outcome, rather than getting into negotiations without having a clear goal in mind.
Business negotiations such as M&A deals often involve busy team members who are likely to forget some tasks when their schedules are filled up with other activities. Setting up status calls either weekly or monthly often results in better engagement and smooth negotiations since parties know what needs to accomplish before the status calls. Regular status calls also keep the negotiating parties updated on the progress of the deal.
In deals that require technical know-how, consider taking a core team approach that integrates subject matter experts. Some experts include key members of the executive, business valuation experts, financial consultants, deal attorneys and investment bankers. Including such experts in the negotiation will help keep the deal on track and provide solutions to technical problems that arise during the deal process. The experts bring different levels of expertise into the process, and they should be ready to participate in areas that require their input.
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