The art of corporate finance negotiation (Part 2)

This is the second blog in a series of 5 that our Partner and Head of Corporate Finance, Paul Mason, has written, based on his experience of negotiating deals successfully over many years.

Part 1 (Every conversation is part of the negotiation) can be found here.

Negotiate the ‘Heads’ (Part 2)

Irrespective of how amicable the transaction might be at the outset, make sure you agree a comprehensive set of Heads of Terms, which both buyer and seller understand and believe represent all the pertinent aspects of the deal.

The purpose of ‘Heads’ (a.k.a. a ‘letter of intent’, an ‘expression of interest’ or a ‘non-binding offer’) are three-fold:

1. They explain the key features of the deal;

2. They seek to flush out potentially contentious points early; and

3. They serve as a future reference point in the event of any subsequent dispute.

It is the same process as sketching out a picture, before lifting up the paintbrush: you want to position the elements of the scene correctly, without getting bogged down in intricate detail at this stage.

What are the consequences of failing to negotiate Heads, or missing out items that are important to you? At best, you might be able to include or refine the points later in the process, but probably at the cost of goodwill, or a necessary “horse trade” for something the other side wants in exchange. At worst, you might find that a missing item is an immovable “red line” for the other party – something that is beyond their ability to offer and becomes a reason why the deal falls over later in the process, having incurred more expense to get to the point of failure.

I have advised on some transactions where it was felt that Heads weren’t necessary. The parties knew each other and trusted each other implicitly. But still, having that reference point proved useful when everyone inevitably “couldn’t see the wood for the trees”. Being able to remind ourselves of what was fundamental at the outset can help us all accelerate through those periods when we would otherwise become bogged down.

In the next, third part of this blog series I will look at how to manage (and how to mismanage) bad news during a deal.

If you are looking to purchase or sell a business, contact Paul today on 0131 558 5800 or email

Read part 3 – Don’t Sweep it Under the Carpet