When it comes to the most important negotiation of your life, are you prepared? Negotiating the sale of your software company is one of the most difficult tasks you will ever undertake. Not only will you and the buyer be in complete opposition on nearly every point, from price, to structure, to risk, and more, but you're likely negotiating with your future boss. 

In the virtual age, post-COVID, the problem is compound. As we talked about last month, we are experiencing software bidding wars. It's no longer a two-month process to get into meaningful dialogue with a competitive slate of bidders. It no longer takes two months to get into a meaningful dialogue with a competitive slate of bidders. It now takes only two weeks. This literally means that you are in a real-time bidding process from the moment you first make contact. 

You don't have months to prepare, and we don't have time for the rabbits to come and have you practice on them. You need to have your answers from the very beginning. You need to refine your position. 

So, here's the 12 tips. 

Number one, determine your position before beginning. In many situations, there are multiple parties, multiple shareholders involved.  

Determining your collective position upfront ensures that everyone is in alignment, avoiding any mixed signals that buyers can take advantage of. Know what you can't do, for example, relocation, earn-outs, stock, et cetera. More importantly, you avoid making on-the-spot decisions that can erode your position. 

Number two, and this is basic negotiation, in a complex world, reveal problems early while leverage is the highest. Look, there will always be some problems in a transaction, things that you have to disclose that are weaknesses. The best time to do that is upfront when you have the best relationship and you can talk it through. If you wait until later, it can actually hurt your position because they'll lose confidence in you. "Why didn't you tell us earlier?" 

Number three, tackle the most difficult issues first. You save time and money that would have been wasted on issues further down the list. (silence) But, more importantly, when you do resolve the most difficult issues first, you set the stage for a less stressful much smoother resolution to the lesser issues.  

Number four, make liberal use of straw men. You need to show flexibility in negotiations, so put in a concept or two that you're absolutely willing to take off the table. There's some things you want. Know some things they want, and be willing to give up on them. This will help you focus on conditions you really need and trade away some of those straw men that aren't that important to you. Remember, the other side has to win too. 

Number five, don't let the buyer serial negotiate. Buyers will often try to negotiate piecemeal, one point, then another, and another. Often with innocuous comments like, "Of course our deals are structured as an asset seller” or “We always pay in unregistered stock," when in fact none of those would be acceptable to you. You need to be on offense as a seller and ask for all the issues to be put on the table, not one at a time. That's not the way you negotiate. If you give up something, you'll have a heck of a time clawing it back, so get them all on the table upfront. 

Number six, and this is subtle, don't imply by your language, body language, whatever, that you accept a buyer's position. Don't be passive or make inferences, smile at something you don't want. Buyers can read acceptance in something very simple. Be clear and direct. This approach saves backtracking, streamlines the LOI process, and sends a clear message to the buyer that you're a competent negotiator. 

You simply tell them, “We need to review everything with the investors, parties involved, advisors, lawyers, before we respond to anything." 

Number seven, there's this old adage, "Don't let them get the milk without buying the cow." It should be made clear that the purchase of the company is the only option on the table. Too many times the buyer may simply try to do a licensing deal, code purchase or distribution agreement. They want access to your technology without paying for your company. If you do sign one of these agreements, it can destroy the value of your company. Make it very clear the only option is a full sale. 

Number eight, and this is important, don't get emotional. Use intermediaries to take the heat. This is actually a very emotional process, because it's the most important transaction of your life, dealing with something you may have spent years or decades building. No matter how frustrating, remember that, when you're done, you have to work with the other side. Don't let the transaction poison your relationship. It's easy to get emotional in the heat of negotiations, especially as there're many others on the other side, and maybe just you on your side. We worry about deal fatigue killing deals. Use your intermediaries. They've been through this many times, and they know these sellers well. 

Number nine, ensure rapid document turnaround, particularly in this day and age. Every opportunity to demonstrate knowledge, capability, timeliness, and professionalism in communication with your acquirer has a direct and positive outcome on price and structure. Slow document production sours most investors. This is particularly true now where buyers are often willing to go under NDA immediately. Look, if they are committing time to seriously considering your company, you need to show the same level of professionalism in your response. 

Number ten, and I can't underscore this enough—get an experienced attorney. Inexperienced attorneys kill deals. Tech M&A deals are complicated. An inexperienced attorney doesn't know the rules of the road. This probably means your company attorney is not the right choice, or somebody related to you or somebody recommended by the board. You need somebody who’s experienced, specifically in software and IT intellectual property. A great way to find a good lawyer is through quorum events. We work with all the top tech law firms in the world. They host our tech M&A workshops at many of the World Financial Symposium events. 

Number eleven, we talked about owner alignment early on, but now, as you begin negotiation— you need to get alignment between your team—owner, advisor, accountant and attorney. Every word of the letter of intent matters, and critical issues will come up between you and the buyer during this phase that can kill your deal. An aligned M&A team is your best offense and defense to achieve an executable letter of intent that meets your goals and reduces your long-term risk. You don't want somebody saying something that is just a poor understanding of what you're trying to do. They can send the wrong message and kill the deal. 

Number twelve, and this sounds kind of corny, but get everyone on the phone together. There's something about your voice, when you talk to people. Gridlock is commonplace, and often leads to the buyer and seller walking away with a sour taste in their mouth. Hearing your voice and your intent to work through the issues will usually dispel much of the tension. Don't over-rely on emails and text messages. They can often be polarizing. Just get on the phone, get it done. We had some young tech entrepreneurs, who had an extraordinary offer.  Just before closing they said we don’t want to do the deal, please email the buyer and let them know the deal is off.  We said no.  The buyers had made substantial investment in time and money.  You have to call them—not email. A lot of young people do that. Once on the phone it became clear they were having some doubts and hadn’t brought up an issue that bothered them.  

One last tip from my Scottish grandmother. One of her favorite phrases was, "'Tis many a slip-up betwixt lip and cup." That means that, from the time you have agreement to closing, things can go wrong. Don't dally, don't delay on getting to a close. Remember, a tech M&A transaction is the most important financial transaction of your life. You want an optimal outcome. If you have a solid process and the right team, you'll be on the offense and in control during the negotiation phase. These 12 tips should help you get the maximum value.