By: Dexter Braff
You’re a seller 24 hours from closing a $50 million dollar transaction.
The deal has edged right up to the brink several times, leaving nerves – and relationships – a bit frayed.
But you’re past all that.
And then the buyer says, “There was an unexpected license transfer fee of $5,000.” Even though you think that expense should arguably be theirs, you agree to split the cost, to which the buyer responds, “No, we think you should bear it all.”
To the buyer, it shouldn’t be a big deal for the seller – just another $2,500.00.
But it’s not.
Because to the seller, it’s much more than $2,500.00.
You see, the buyer crossed The Line (capital ‘T,’ capital ‘L’).
Invisible? Yes.
But it was there. And tiptoeing over it could cost them.
Because instead of a happy seller with $50 large in the bank, you have a seller with financial security and the memory of a final indignity.
A seller that might swallow hard on what otherwise would have been a full-throated endorsement of the buyer to his staff.
A seller that might be just a tad more feisty when the inevitable post-deal disagreement surfaces (and it will).
A seller that might clip his response when asked to be a reference for the buyer in their next deal.
Same holds true for sellers.
If he or she overstays their negotiating welcome? Well, with working capital true-ups to work through, reps and warranties to validate, and a bucketful of escrow to work with, buyers have more than enough resources to even the score – and more.
If you think we’re being over-dramatic, you’re way underestimating the emotions both sellers and buyers must navigate to affix signatures to a definitive purchase agreement.
All of which brings us to The Theory of The Line.
Quite simply, it goes like this:
Buyers and sellers should negotiate heartily right up to the point where they find themselves only a metaphorical inch or two before they get to – or worse yet – cross The Line. Because that last inch or more is going to be expensive. Far more expensive than it’s worth. And worse yet, you likely won’t know when the bill comes due or even how much you had to pay.
And how do you know where the line is?
When the tenor of negotiations moves from surely to surly. When responsiveness goes from PDQ to long overdue. When concession requests morph from hefty to petty.
Ultimately, however, unless you’re a Vulcan, you’ll know when you’re getting close.