Tag Archives: Negotiation

My Worst Nightmare – Sell or Downsize? Fifteen Considerations (Part 1)

Situation: The Company is losing money and has been approached about a merger. The CEO’s ideal outcome would be to get cash on the table, integrate with the merger partner and continue business. The other alternative – downsizing – may hurt company morale. What are the best options available?

Advice from the CEOs:

  • The realities of mergers:
    • 70% of mergers fail, and the merger process often leaves founders with a minority stake in the company.
    • Experience of others with partners has been disappointing – better to control your own destiny.
    • Look at all alternatives before you jump into a merger. You founded the company and have brought it this far. The company will be a different company following a merger, and not the company that you founded or have led to date.
  • Message to your potential merger partner:
    • Be a reluctant bride.
    • “We are making improvements to return to profitability and I’ve joined a board of CEOs who are consulting me through the process.”
    • If the partner sweetens the offer to keep the merger on the table, make sure that you get 51% of the merged company and retain control of your own fate.
  • Reconsider downsizing – Others have found the downsizing experience wrenching, but with far more positive results than they expected.
    • More on this in the next ceo2ceos blog.
  • Summary: look more closely at your situation before your jump into a merger. If you can save expenses, return to profitability and stay independent you will be happier.

Key Words: Merger, Negotiation, Ownership, Downsizing, Mitigation, Layoffs, Profitability  [like]

Partnership Agreement for a New Venture: Seven Points to the Negotiation

Situation: We are negotiating a partnership venture. We would fund the entity, and the partner will earn ownership through sweat equity. How do we draft a fair partnership agreement?

Advice from the CEOs:

  • The most important factor is the ability of the two partners to drive a successful venture: proof of ability to contribute needs to be a prerequisite to allocating ownership.
  • How does the sweat equity partner prove their capability?
    • Create a schedule of milestones for the partner to earn ownership, based on mutually agreed objectives or revenue generation.
      • The beauty here is that you retain control until the partner has proven their value by delivering results.
      • The potential downside is long-term liability of the venture.
        • The longer that you retain majority ownership, the longer you retain majority liability.
        • Insure yourself against this liability.
    • Buyout clauses are important to retain your interest if the partner fails to deliver.
    • Include a liquidation clause in case the venture fails.
  • Negotiating the agreement:
    • Draw up a 6-month letter of intent. Specify what each side brings to the table and what each commits to deliver. Set clear, measurable, time-bound objectives.
    • Negotiate fair protections desired by each party.
    • Consider a consultant to facilitate settlement of areas of contention.
    • Theoretically, each party needs their own legal counsel. This adds expense but provides protections for each in the final agreement.
    • Factor the cost of legal advice as well as consultant facilitation into your planning model.

Key Words: Partnership, Joint-Venture, Sweat Equity, Agreement, Negotiation, Buy-Out Clause, Liquidation Clause, Letter of Intent (LOI)  [like]