Most negotiations end up involving multiple parties
Image Credit: peteandcharlotte
When you are planning your next negotiation, what is running through your mind? You can probably see yourself sitting at a table negotiating with the other side. This tends to be how we view most negotiations. However, it turns out that reality often looks much different than this. Negotiators often have to deal with more than one party to reach their goals. This requires us to tailor our negotiation styles and negotiating techniques towards this end. These negotiation scenarios pose unique challenges for us. However, most negotiation advice focuses on talks between two parties.
The Challenge Of Multi-Party Negotiations
Understanding how a negotiation can unfold when there are multiple parties involved is a complex subject. The good news for you and I is that studies have been done of these very types of negotiations. Some very smart scientists have studied real-world mergers-and-acquisitions (M&A) deals, which tend to involve experienced lawyers, bankers, and businesspeople. The deals that are being negotiated are often prices at many millions, even billions, of dollars. As I believe that we are all very aware of, some of these deals prove successful; others are well-known disasters.
One of the biggest challenges that we can run into as negotiators is that when there are multiple parties involved in a deal that we are trying to negotiate, things can change very quickly and they can change at any point in the negotiations. The worst time for these changes to start to show up is after we’ve been able to sign a deal and before we’ve been able to actually close the deal. Many things can happen during this time that can have an adverse impact on the deal that we are working so hard to put together.
In the world of M&A, the negotiators realize that there are a number of things that can go on during this time period between the signing and the closing. What they are looking for is a way to minimize the number of things that could cause a deal to become undone. What they have discovered is that if they can come up with a way to bind the different parties together between the signing and the closing, then they’ll have a much better chance of actually making their deal work out in the end.
How To Make A Multi-Party Negotiation Work Out
So all of this talk leads to the inevitable question: when there are multiple parties involved in a negotiation, how can you hold things together in order to be able reach a successful deal? One lesson you may be able to adapt to the complex negotiations that crop up in your business and personal life is deal protection. Deal protection is a heavily negotiated issue in M&A transactions; however, deal protection is rarely negotiated outside the M&A context even when it could create value.
In a typical negotiation, sellers can use deal protection. As an example, take a typical residential real-estate bargaining session. In the time between the purchase-and-sale agreement and the closing, the person selling the house is bound irrevocably to the transaction. This clause protects the buyer, but it means that the seller can’t accept a higher offer—a condition that can be inefficient for both the seller and the buyer. Imagine you’re selling your home. A prospective buyer falls in love with your house and (unbeknown to you) one other house. After much debate, he makes a successful bid on your house. Soon after you’re under contract, you receive a blockbuster offer from another party. It’s too late to back out, right? Not if you had negotiated deal protection.
For example, you might have proposed a clause that would allow you to withdraw between signing and closing by paying the buyer a breakup fee of perhaps $25,000. For a buyer who is virtually indifferent between your house and another house, this should be an attractive alternative. It turns out that Buyers can make similar moves. Suppose parties are at an impasse, with the seller asking $500,000 and the buyer offering $450,000. The buyer might offer a “loose” $450,000 deal that allows the seller to accept a better offer between signing and closing by paying a modest breakup fee, such as the buyer’s out-of-pocket costs.
What All Of This Means For You
Although when we try to imagine our next principled negotiation, we often picture ourselves negotiating with only one other party, all too often this is a mistaken belief. In the real world we find ourselves in a complicated multiparty negotiation. In order to make a deal happen in this situation, we’re going to have to understand how to deal with all of the different viewpoints.
One of the biggest challenges that we may end up facing in a multiparty negotiation is the simple fact that between the purchase-and-sale agreement and the closing a lot of different things can happen that will cause your deal to become undone. The good news is that you can take steps to prevent this from happening. If you work with the other side to implement a form of deal protection, then both parties will have a way to react to changes in a way that will allow them to both get the best deal possible.
As negotiators we need to learn to adjust to the way that the world really works. Although we’d like to be able to live in a world where we don’t have to worry about the complexities associated with negotiating with multiple people at the same time, it turns out that we have to. Using deal protection you can ensure that once you’ve reached an agreement with the other side, you can be assured that you’ll be able to finalize a deal with them.
– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Negotiating Skills™
Question For You: How significant do you thing that your deal protection will need to be in order to ensure that the other sides will be willing to do a deal with you?
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