Merger & Acquisition Insights

Deal Making 101 – Choosing the Right Battles is Key to Winning the War

Posted on November 11, 2020 by admin

In order for buyers and sellers of businesses to successfully execute a transaction, both sides must remain disciplined in allocating time, energy, and focus in diligence and negotiation. Consistent with the classic 80-20 rule, one could assume that 20% or less of the deal points in a transaction account for 80% or more of the value creation for each party. However, many transactions fail to even make it to the closing table when one or both parties get bogged down by the 80% of deal points that only have a marginal impact on value. Below are three strategies to consider to “choose the right battles” on the path to “winning the war” – in order to successfully close a transaction.

Strategy #1: Focus on material deal points in the context of transaction goals

Before embarking on a journey to buy or sell a business, it is critical to define goals to serve as a filter for various opportunities that the market may make available. Sellers must define goals around financial outcome, post-transaction involvement, plans for key employees, etc., while buyers must define strategic and financial rationale for acquisitions as part of their larger growth plan. When negotiating a transaction, both parties must let these goals serve as a “north star” in guiding the sequencing and emphasis placed on each deal point. When parties can focus early energy on structuring a transaction that accomplishes the most material goals of each side in principle, it becomes a whole lot easier to navigate the marginal trade-offs of dollars and risk associated with ancillary deal points.

Strategy #2: Remain principled on the “end”, flexible on the “means”

When negotiating material aspects of a transaction, buyers and sellers must be willing to take a step back and view the transaction in totality, rather than honing in on specific deal points. Too often the parties get caught up in the weeds of specific economic or legal mechanics and “die on the hill” of trying to impose their will on a specific point, when the reality is there are an infinite number of ways to structure a transaction to accomplish various goals. If there are alternative ways to structure a transaction that result in materially similar net economic and risk outcomes, wouldn’t it be worth having that conversation? While it is generally not prudent to compromise on the “end” (i.e. the most significant goals each party has in the transaction), it is necessary to remain open-minded on the “means” to get there.

Strategy #3: Seek clarity to determine if a “battle” is necessary at all

Particularly in the earlier stages of a transaction when the parties are just getting to know one another, it is critical to establish clarity around the goals of each party as well as the nature of the sellers’ business. Due to the information asymmetry inherently present in the process (seller has operated the business for 30 years while buyer has had two weeks of high-level diligence), buyers will often err on the side of caution when proposing initial terms. Rather than taking offense and responding emotionally in a way that could jeopardize the transaction, sellers and their advisors should seek to understand the risks the buyer is willing to mitigate, provide additional information or explanation to help the buyer distinguish between “real” and “perceived” risks in order to advance the conversation. As Sun Tzu once wrote in The Art of War, “The greatest victory is that which requires no battle.” Although every transaction that makes it to the finish line will inevitably have a few “battles” (i.e. negotiations around material deal points), the parties must conserve mental and emotional energy by avoiding unnecessary battles so that deal fatigue does not threaten a deal that would otherwise accomplish the goals of both parties.

Stephen Joest is a Senior Analyst at the Tenney Group, an M&A advisory firm dedicated to serving the transportation & logistics industry since 1973. Tenney Group typically represents sellers with annual revenues ranging from 20M to 200M. For more information visit,

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