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Top 5 ways for private equity professionals to handle tense negotiations

It’s a fact of life in the PE world.  Negotiations can get tense.  Even when the parties seem very well aligned – there is an eager seller who is ready for an exit, the parties have already negotiated a robust letter of intent that covers many of the major deal points, etc. – there is nearly always one or two points in the process where tensions rise and it feels like the deal could be in jeopardy.  Whether it involves negotiating a purchase price reduction due to a less-than-optimal last minute due diligence finding, talking to a business owner about his role in the business (or lack thereof) following closing or another equally fraught deal-specific issue, there are things that you can do as a private equity professional to keep the deal on track despite these difficult conversations and optimize outcomes in the process. 

So how can a private equity professional approach a potentially tense negotiation in order to keep a transaction on-track and achieve the best possible result?  We asked our good friend, Jodi Coochise, a licensed psychologist and behavioral finance consultant and coach, to recommend her Top 5 ways to handle a tense negotiation in the PE space.  Here are few things that you can do and keep in mind when dealing with a difficult topic in order to keep the negotiation grounded, focused and moving in a positive direction.

1.     Set Clear Goals Ahead of Time.  Establish a mutual goal before jumping into the negotiation. Often we assume this goal is self-explanatory or has already been determined. However, spending some additional time on this step at the beginning of the conversation can help set a tone of mutual respect and ensures there are no hidden agendas or expectations that might derail the conversation later.

2.     Start with the overlap. When two people enter a negotiation meeting, they are primed to “fight” for what they believe to be fair. Starting a dialogue from this “fighters” mindset often results in tension and disagreement taking center stage in the conversation. Focusing on the differences also reinforces the attitude of being on opposite sides, which can make negotiating more difficult. It may seem counterintuitive to start the conversation on things the two sides agree on, but doing so fosters a tone of agreement and compromise that will be necessary once you get to the items that are likely to be stickier.

3.     Don’t ignore the vibe.  Pay just as much attention to the “mood in the room” as you do the content of the discussion. When we neglect our awareness of how others are responding emotionally we leave ourselves vulnerable to stumbling into a failed negotiation. As tensions build, people’s behaviors start to change. You might notice raised voices, people may cut each other off and start responding with flippant or sarcastic comments. These types of reactions can trigger defensiveness and anger and can derail a fruitful discussion. When you are able to monitor any changes in the tone or emotion of the room, you can take steps to reduce that tension before reactions boil over. You might suggest taking a break to let emotions cool, revisit the mutual goal established at the beginning of the discussion, or just take a deep breath to ground yourself. Remember that when our emotions run high we are less likely to think clearly, which interferes with the original goal of finding a shared outcome.  When attention shifts away from the shared outcome, it can instead swing the focus towards “winning” or in some cases, “harming” the other person, which will likely not lead to productive results.

4.     Remember that coercion is not the same as negotiating. It’s important to be mindful of when we are pushing too hard or trying to control the conversation. Cutting others off, speaking in absolute terms, asking leading questions, and using attacking statements are all ways we can be too aggressive and end up derailing a negotiation. By paying attention to these conversation-stoppers when they pop up, you can change course and work on asking open-ended questions, giving everyone the space to express their points of view and regain a tone of mutual respect.

5.     Don’t underestimate the power of softening the message. Most of us have an internal alarm that goes off when it feels like someone is imposing their will on us. We instinctively react by digging into our point of view, pushing back with an equal amount of force or checking out of the conversation altogether. This is far from ideal when the hope is to reach a shared agreement. Softening your message slightly can help to re-engage the other person in the dialogue. You don’t have to change to a weak argument or abandon your perspective. However, by using statements like, “In my opinion…,” “It appears….,” or “I’m wondering if….”, you demonstrate that you are open for a dialogue and willing to hear another person’s perspective. Make sure to present things as your point of view, not as a universal fact.

Many thanks to Jodi Coochise for her contribution of this blog post.  Jodi received her Ph.D. in Counseling Psychology from Colorado State University.  She is a Licensed Psychologist who divides her time between a clinical practice and working in the financial industry.  Jodi’s non-clinical work includes consulting with financial advising firms, where she provides coaching for advisors around integrating Behavioral Finance principles into their client interactions.

Check out Jodi’s prior post, Top 5 ways to approach negotiations with an emotional seller.

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