Art of negotiation: Tips on working out a commercial deal

Negotiation should not be looked upon as a combative process, rather a collaboration where all parties should be moving forward together to strike a deal. However, before taking part in that process it is of the utmost importance that parties work with their professional advisers to understand what their own position is and what might be considered “market” in the jurisdiction(s) and sector(s) related to the deal in question.

For example, in some jurisdictions it may be absolutely standard for certain buyer protections to be given by the seller in the form of indemnities whilst in others that may not be the case.  A seller may not feel able to give indemnities for long periods of time, perhaps they need to return funds to their investor.

All of these factors need to be taken into account to understand a party’s ideal position.  Once that position is understood, consideration can be given as to what is deal critical and what they might be willing to sacrifice in order to reach a commercial position that they can strike a deal on.

Knowing the rules of the game and what should or should not be accepted allows the parties to focus on the real issues thus leading to more fruitful and productive negotiations.

In order to consider where the parties may land at the end of a negotiation, time should be taken to understand the relative bargaining power of those involved. A motivated seller of an unpopular asset class with only a single buyer in view, may be willing to make concessions that they would not make if they had been approached by multiple bidders.

Negotiations may take place through a number of mediums, including face-to-face meetings, telephone conferences or email exchanges. Whilst the key themes of the negotiations may be the same, they do have nuances that should influence ones approach.

For example, points may get addressed more effectively in a live interactive discussion rather than trading multiple emails. In contrast, a clearly worded email may make it easier to set out a position in full together with detailed reasoning that a recipient can reflect upon without feeling forced to respond in real time on a topic that they do not feel they have sufficient understanding or instruction.

Whichever medium is used, in-keeping with the emphasis on a collaborative approach, communications should remain professional and respectful.  All too often, parties can confuse robustly defending their position with being overly aggressive and discourteous. Whilst this may “win” a particular point it is likely to lose goodwill in the long term and the ability to agree upon a mutually acceptable deal.

When the parties do begin to negotiate, it will likely be on the basis of a draft agreement prepared by or on behalf of one of the parties. A more balanced draft should serve to reduce the level of negotiation required to reach a deal.  That being said, particularly where the party with the greater bargaining power is preparing that first draft, it is not uncommon for a draft that heavily favours that party’s interests to become the starting point.

The thinking behind this is often that you are more likely to get more of what you want by starting from your ideal position and making the other side pair it back.  This may well be true but such an approach also carries with it the risk of antagonising the other party or parties. If that approach continues over multiple drafts, the aggrieved party may walk away leaving the other with “no deal”.

Of course, knowing when to walk away from a deal is in itself part of the art of negotiation. If, after best efforts, the parties are unwilling or unable to accept the position of the other(s), it may be that no deal truly is the better deal.

However, the parties would want to know that this was as a result of careful, collaborative negotiations and not by failing to understand the value of adopting a collaborative approach to agree rather than disagree.