In my previous post “2017 in Review: Trends in Retail Auto Mergers and Acquisitions,” I highlighted an all-too-familiar and continuing trend: the battles between buyers and sellers over valuation — battles that arise from what I like to call the “value disconnect.”
Sellers, who naturally want to get top dollar for their dealerships, are often reluctant to admit annual sales increases or operational efficiency haven’t been the same as in years past. Buyers, who naturally want to pay as little as possible, use this fact in an attempt to negotiate a lower price. Bringing the two sides closer to a reasonable valuation of a given dealership can be one of the biggest challenges in the negotiating process.
Unfortunately, finding a phrase to reflect the source of this friction (the phrase “value disconnect”) is far easier than pining down its causes or finding a “go to” tactic to combat it. In this post, I examine the causes of the value disconnect, separating the causes attributable to the seller from those attributable to the buyer, and I offer guidance on how to
Business transactions, especially mergers and acquisitions (my specialty), involve both head and heart — cognition and emotion. However, we focus far more on the price and terms in an agreement than on the emotions that almost always play a major role in the outcome, even to the point of determining whether negotiations end in a deal or a deadlock. Instead of understanding emotion and using it to our benefit either through insight or action, we often let emotion drive an outcome, usually to the detriment of everyone involved.
I am not suggesting that we leave our emotions outside the door of the conference room, if that were even possible. Emotions play a valuable role in negotiating. For example:
- Desire pulls parties together to initiate a transaction.
- Eagerness gives us the energy to persevere when the negotiation drags on.
- Fear can encourage us to examine a contract more closely.
- Disappointment can signal the need for further discussion.
- Anger is sometimes used to make an overly aggressive party realize they need to back off.
What is important is that we maintain our poise and manage the emotions (both our own and our counterpart’s), so these emotions do not control us or the deal.
In a study entitled “Can Nervous Nelly Negotiate? How Anxiety Causes Negotiators to Make Low First Offers, Exit Early, and Earn Less Profit,” Alison Brooks and Maurice Schweitzer of The Wharton School of Business at the University of Pennsylvania, conclude