How to Make a Better Deal in Your Deal-Making: Top 5 key points to remember

Posted on: October 4th, 2016

Business experts classify the anatomy of a business deal as having three main components.

One, the expected return, or what you would expect to gain; two, the upside potential, or the best possible outcome and three, the downside risk, or the worst possible scenario. The ultimate goal of a well-negotiated deal is to have a fair expected return, a positive upside and possibly very little downside.

While a considerable amount of experience and expertise goes into completing a successful deal, we have listed out five essential pointers to help you get the best out of your deal making.

The simpler, the better: Complications in deal making often arise out of complicated deals. To avoid unnecessary confusion, uncertainties, or misunderstandings, keep it simple. The majority of the negotiation should focus only on the key points that serve the underlying interests of both parties.
Use the Clock: In most cases, negotiations expand to fill the entire time available. While important decisions should not be rushed into, a healthy deadline often works in favor towards achieving a better deal. So insist on a deadline at the onset of your negotiations.
Understand where your BATNA lies: Commonly called the Best Alternative To a Negotiated Agreement, BATNA helps in understanding the best-case scenario if the deal doesn’t get done. This in turn will influence the incentive each side has to make a deal happen
Don’t be afraid to get personal: Ultimately, the success of the deal revolves around the people involved. It is therefore wise to take time to understand the person behind the deal and his/her motivations and objectives. Whether you choose to play golf, or go to dinner, spend quality time and learn all you can about the person or people involved.
Be smart about the written contract: Finally, a deal is only as good as its final contract. Avoid falling into the temptation of allowing the other side to do your paperwork for you. Rather hire your own lawyers and specialists to get the legal language right, making sure it is a watertight deal.

In the middle market, acquisition financing providers are regarded as super intelligent and hardworking. They have distinguished themselves at elite banks or consulting firms and possess the ability to synthesize voluminous levels of info into a coherent, succinct takeaway or observation. This skill is extremely valuable in attributing causation to business drivers in a financial model used to foretell the future.

The deal world thrives on the belief that the institution providing acquisition financing will deliver on their promise. Lenders usually telegraph their capital capabilities early on during the sales pitch and give their deal sizes and hold levels for their fund.

Most mezzanine debt borrowers are rightly focused on the downside of breaking a covenant and for good reason. Most borrowers have had to deal with overly sensitive banks in the past which often exhibit trigger happy default notices during covenant breakages, especially when they want to get out of a loan.