Know When to Hold ‘em and Know When to Fold ‘em - Managing Deal Fatigue During the Negotiation Process ~ Part 2

Upon completion of the majority of due diligence, frustration with the transactional process has generally started to set in, at least for sellers. However, the process is far from over. If a purchase and sale agreement has not already been signed, the real negotiations begin at this stage. It may also take time to draft other major transaction documents such as employment contracts and forward-looking operational agreements such as operating agreements and shareholder agreements.

It is extraordinarily important for parties to review all documents, or at least changes to those documents, as those documents and changes are prepared. The parties should discuss the documents with their attorneys and accountants so that they understand the financial and legal implications for each document as well as the purpose of each document. The role of accountants, attorneys and similar advisors is to provide advice, counsel and guidance during the negotiation process; however, all decisions are ultimately up to the parties. Consequently, the parties must understand the implications and nuances of each term and condition in the various documents.

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Know When to Hold ‘em and Know When to Fold ‘em - Managing Deal Fatigue in Mergers and Acquisitions ~ Part 1

Anyone who has ever purchased a car or bought a house knows that purchases and sales of large assets are stressful, time consuming, expensive and involve more paperwork than expected. In many transactions, either or both parties reach a point in the process where they just want the process to be done.  In corporate transactions, this point in the decision making process can be dangerous because parties agree to liabilities, indemnities, potential losses, reductions in the purchase price, broad or too narrow non-competes, unreasonable or unlikely forward measured financial requirements and generally unfavorable terms, or they cut corners on due diligence simply to make the process stop.  Alternatively, either or both parties throw their hands up and walk away from a good deal, not because of the deal terms, but out of frustration with the process.

My partner, Ken Barbe, has astutely termed this behavior “Deal Fatigue.”  We liken it to the point in a torture session where the individual being tortured is willing to say anything in order to make the torture stop.  Decisions made as a result of Deal Fatigue can have long-reaching fiscal, legal and mental impacts. Accordingly it is important to manage Deal Fatigue to the extent possible so that parties do not make a bad deal or walk away from a good deal.

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