As a business adviser, your expertise is essential in guiding clients through the complex process of selling their business. One of the key challenges in this process is managing negotiations effectively, particularly when faced with strategies like offer sequencing. This tactic, often employed by acquirers, can undermine your client's ability to secure a fair deal, resulting in undervaluation and a loss of leverage. To help your clients avoid these pitfalls, it’s crucial to understand how offer sequencing works and how you can protect your clients from its effects.
What is Offer Sequencing?
Offer sequencing is a negotiation technique used by buyers to influence the sale in their favour. It involves making a series of offers, typically starting with a low initial bid and gradually increasing the amount. The aim is to set a psychological anchor with the first offer, making later offers appear more attractive, even though they may still fall short of the true value of the business. As a business adviser, it’s important to recognise this tactic early in the negotiation process and ensure your clients do not fall prey to artificially lowered expectations.
Why Acquirers Use Offer Sequencing
Buyers use offer sequencing to gain the upper hand in negotiations. By presenting a low initial offer, they establish an anchor that sets the stage for all future offers. This makes subsequent offers seem more appealing, even if they remain well below the business’s true value. Acquirers also use incremental increases to create pressure, encouraging the seller to make quicker decisions. This allows buyers to test how flexible the seller is on price. If the seller engages with these lower offers, it signals to the buyer that they may be willing to accept a lower final offer. Understanding these motives will help you better advise your clients and safeguard their interests.
The Impact on Your Clients
If your clients are unaware of offer sequencing, they risk falling into several traps. Accepting an initial low anchor offer can lead to selling the business for far less than it’s worth. Once expectations are lowered, clients may lose the leverage they need to negotiate effectively, reducing their ability to secure a fair price. Furthermore, the pressure created by incremental offers may lead to rushed decision-making, preventing clients from thoroughly evaluating each offer and its long-term implications. As their adviser, your role is to ensure they avoid these pitfalls and remain in control of the process.
How to Protect Your Clients from Offer Sequencing
To protect your clients from offer sequencing, you’ll need to implement a series of strategic measures throughout the sale process.
1. Establish a Baseline Valuation: The foundation of any successful negotiation is an accurate valuation of the business. Before entering negotiations, it’s vital that your client obtains an independent valuation from a trusted expert. This will provide a reference point that helps them resist low offers based on buyer-driven valuations. By understanding their business’s true worth, your clients are less likely to be swayed by the acquirer’s initial offers, no matter how strategic they seem.
2. Engage Multiple Buyers: One of the most effective ways to counter offer sequencing is to engage multiple potential buyers. This creates a competitive environment where acquirers are forced to make stronger offers from the start. As the adviser, your role is to help your client identify and approach potential buyers, ensuring that there is healthy competition for their business. With multiple buyers in play, your client will have more leverage in negotiations, which can help neutralise the effects of offer sequencing.
3. Educate Your Clients on Common Tactics: Knowledge is one of the most effective tools in negotiations. By educating your clients about common negotiation tactics such as offer sequencing, they can better recognise these strategies when they arise. Walk them through examples of how anchoring and pressure tactics work, and ensure they understand how these strategies can impact their decision-making. This awareness will help them remain calm and deliberate when faced with incremental offers and keep them from making rushed decisions.
4. Retain Specialised Legal and Financial Advisers: While your expertise as a business adviser is invaluable, it’s also important that your clients have access to legal and financial advisers with specific experience in mergers and acquisitions. These professionals can help identify red flags in offers and ensure that your client doesn’t overlook critical details in the terms and conditions. By working together as a team, you can provide your clients with a well-rounded approach to negotiating their exit strategy.
5. Thoroughly Evaluate Each Offer: When offers start coming in, it’s crucial that your client doesn’t focus solely on the headline price. Each offer should be evaluated in terms of its overall structure, including payment terms, contingencies, and legal conditions. As their adviser, you should help your client take a step back and review each offer holistically, considering both the financial aspects and the strategic fit with their long-term goals. This will prevent your client from being swayed by offers that seem attractive on the surface but come with strings attached.
6. Prepare Your Clients to Walk Away: One of the most powerful tools in any negotiation is the willingness to walk away from a bad deal. Clients need to be prepared to reject offers that don’t meet their expectations or reflect the true value of their business. As their adviser, it’s important to give your clients the confidence to walk away from deals that don’t feel right, even if they’re under pressure to accept. Walking away from a bad deal today could lead to a better opportunity tomorrow, and your role is to help your clients maintain perspective during this critical stage of the process.
Neutralising Offer Sequencing with Competitive Tension
Creating competitive tension is one of the most effective ways to neutralise offer sequencing. When multiple buyers are involved, the acquirer’s ability to control the flow of offers weakens, as they are competing with other parties. This often leads to stronger offers upfront, reducing the acquirer’s ability to start with a low anchor and gradually increase their bids. As a business adviser, you can guide your client through this process by helping them engage multiple buyers and ensuring that they maintain control over the negotiation.
Your role as a business adviser is pivotal in helping clients avoid the pitfalls of offer sequencing and other negotiation tactics. By educating your clients, establishing a clear valuation, fostering competitive tension, and providing expert support, you can ensure that they remain in control of the process and achieve a sale that reflects the true value of their business. Key strategies include creating a baseline valuation, engaging multiple buyers, staying informed about negotiation tactics, involving specialised advisers, thoroughly evaluating all offers, and encouraging a willingness to walk away when necessary.
As a business adviser, you have the power to make a significant difference in your clients’ exit strategies. Helping them navigate the intricacies of business sales, including tactics like offer sequencing, is a critical part of securing the best possible outcome. If you’re interested in offering this level of strategic support to your clients, consider becoming a Vexus partner. Contact us today to discuss how we can work together to protect your clients from the challenges of offer sequencing and other negotiation tactics, ensuring they achieve a premium exit deal that truly reflects their business’s value.
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