The Financial Times’ ‘Business questions – Expert advice’ section recently published my response to a question concerning difficulties experienced in selling a business where there are a few ongoing disputes affecting valuation. Not surprisingly, I happened to mention mediation! The gist of my response can be seen below, or the piece as published can, if you have an account with the FT, be viewed by following this link.
Question: I am hoping to sell my business to a competitor but we have been arguing about valuation. I have had a couple of disputes with suppliers and the prospective purchaser wants a hefty discount to allow for these. I can’t guarantee the outcome but I want to sell in the next couple of months. What are my options?
Disputes are a headache for any business. They not only divert time and money, but the outcome is never certain. It is not surprising, therefore, that the purchaser wants a discount, no doubt reflecting worst-case scenarios. If unacceptable, propose something else.
You might consider suggesting a ‘disputes’-related deferred consideration but the risk with this option is that if the purchaser (who is a competitor) is in control, a ‘soft’ deal may suit them in terms of any ongoing relationship with suppliers. And it will be you that ends up paying by way of a reduction in the deferred consideration!
A second and better option, would be to suggest mediation to the suppliers. Businesses are increasingly using mediation as an alternative to both litigation and lengthy bilateral negotiations. Mediation is an inexpensive dispute resolution process that can be organised at short notice, takes no more than a day and, importantly, is usually successful. The mediator, appointed jointly by the parties, is a resolution-focused third party neutral trained to overcome deadlock in difficult negotiations. With an 85% – 90% settlement rate, you might find through mediation that the last obstacle to an agreed valuation falls away.