From Value to Price: Understanding the Factors that Influence Negotiations
In previous articles, we discussed the distinction between value and price, highlighting the importance of evaluation in any transfer process to facilitate the realization of the transaction. Indeed, if evaluation is the starting point of a negotiation, the price is the final result. Between these two figures, various factors can explain the difference and the passage from value to price.
Risks and Due Diligence
The first factor influencing value is the risks identified during due diligence, which covers various aspects of the company (strategic, operational, accounting, financial, and technical). These risks can significantly impact the negotiation and ultimately, the price.
Level of Control and Synergies
The level of control and potential synergies resulting from a merger or acquisition also play a crucial role in determining the price. Synergies and restructuring costs are often discussed to be integrated into the business plan. The level of control can justify a control premium or, conversely, a minority discount.
Economic and Market Environment
Other factors related to the economic and market environment in which the company operates can also influence the negotiation between buyers and sellers. The situation of financial markets and the macroeconomic context generally impact the transaction climate, favoring or hindering its completion. Thus, during periods of economic dynamism, negotiations have a higher chance of success compared to periods of recession.
Regulatory and Political Environment
The regulatory and political environment can also have a significant impact on the transfer process. Certain regulatory constraints, such as those related to competition or the stock market, can derail the project.
Negotiation Climate
Finally, it is essential not to underestimate the influence of the general negotiation climate between buyer and seller. Depending on their respective constraints and objectives, each party may be led to make concessions or, on the contrary, be more demanding.
Conclusion
In conclusion, to move from value to price, confronting the evaluation work with all the aforementioned factors allows for arriving at a proposed price range for the seller, accompanied by the main terms of the transaction.
