Deal Fatigue: What you need to know before an M&A

Deal fatigue refers to a condition during negotiations where parties on either side of the negotiation begin to feel frustrated, helpless or exhausted by an unending negotiation process. Members of negotiating teams may feel like giving up due to the failure to reach a consensus.  What are the causes and how can you minimise the risk of deal fatigue?

Deal fatigue is common in mergers and acquisitions where parties are rigid in their proposals and positions. It can result in the deal process being abandoned if neither the buyer or seller is willing to make concessions to close the deal. It can also force one party to compromise their initial terms or price as a way of moving the deal process forward.

Either way, deal fatigue often results in less beneficial outcomes than could otherwise be achieved. It can also cause a deal to be prematurely terminated.

Causes of deal fatigue

If you’re entering into an M&A deal, make sure you’re aware of these common causes of deal fatigue in your negotiations:

  1. No deal timeline or proper foundation Sometimes, negotiations may keep moving from one step to another without making any definitive progress. This usually occurs when there is no consensus on the timeline of the negotiations from the start.
  2. Miscommunicated requirements Prolonged negotiations may 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 by a process without clear direction.
  3. Unavailability of subject matter experts In negotiations that require technical expertise (eg medical, high-tech), the absence of subject matter experts when they’re needed may cause deal fatigue as negotiating parties feel they are handling something they don’t completely understand and become frustrated.
  4. Incomplete information Some buyers and sellers may fail to disclose all material information, either knowingly or unknowingly. As a result, negotiations will take longer and create an atmosphere of distrust.
  5. Changing conditions during negotiations In long negotiations, any significant changes in circumstances will affect the duration of the talks. Such changes may include loss of key customers, the exit of key employees, profit warnings, lawsuits, and failure to achieve sales targets. When these conditions arise, some interested buyers may change their terms at an advanced stage, prolonging the deal or even pulling out.

Ways to mitigate deal fatigue

Here are three steps that parties can use to mitigate deal fatigue:

1. Assign a dedicated project manager

The first step to avoid deal fatigue during negotiations is to name a dedicated project manager who will be tasked with coordinating meetings and task lists. The project manager continually follows up to see how far the parties have gone in achieving specific tasks and action points by a given time. Tracking task lists helps to keep the parties focused on delivering the next item on the list and knowing how far they are into the outcome, rather than getting into negotiations without having a clear goal in mind.

2. Set up regular status calls

M&A negotiations often involve busy team members who are likely to let some tasks slip when their schedules fill up with other activities. Setting up status calls either weekly or monthly often results in better engagement and smoother negotiations since parties know what needs to be accomplished by the time of the status call. Regular status calls also keep the negotiating parties updated on the progress of the deal.

3. Take a core team approach

In deals that require technical know-how, consider taking a core team approach that integrates subject matter experts into the negotiation process. Such experts may include key members of the executive team, sector-specific business valuation experts, financial consultants, deal attorneys, and investment bankers. By including these experts in the negotiation, it helps to keep the deal on track and solve technical problems that may arise during the deal process. The experts bring different levels of expertise and points of view into the process, and they should be ready to participate in areas that require their input.

4. Have deal advisors who can intervene

In a negotiation where one party feels disadvantaged, the parties may become involved in a bitter exchange of words and lose the gains already made in their negotiations. If this happens, deal advisors should intervene to help the parties continue to negotiate without losing patience and work towards achieving a win-win outcome.

If you are planning to sell, merge with or acquire a business, please see our M&A services and contact us for support. You may also be interested in our M&A planning tips or learn more about avoiding other M&A deal breakers.

About the Author
Steven Zabeti , Accru Felsers Sydney
Steven communicates with his clients regularly, offering business support and practical solutions. He’s known for building good working relationships and providing consistent professional service with an entrepreneurial flair that adds value to engagements.
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