Wednesday, March 26, 2008

Jane, Stop this Crazy Thing

As a business transaction attorney, I am a first-hand witness to the personal energy, time and emotion that parties put into the purchase or sale of a business. All of these elements can be critical components to completing a transaction; they can, however, also cloud and complicate the decision to terminate negotiations and abandon a transaction.

When parties commence a business transaction it is often with the best intentions, good faith, but only a general agreement of the essential business terms of the deal. As the saying goes, “the devil’s in the details”. As lawyers, accountants, and other professional advisors become involved, the parties are forced to consider the transaction terms with much greater specificity. Moreover, there are almost always terms and conditions that are critical to the transaction that the parties did not consider in their initial discussions.

As the negotiations and preparation of the transaction documents move forward, the opportunity for a “stalemate” on a critical issue increases. Too often, such stalemates lead to protracted and unproductive negotiations. As a result the transaction may fall apart, or one or both of the parties may end-up with a transaction that does not meet their anticipated result.

Ultimately, a purchase agreement is a balance of risk and reward. The buyer or seller of a business must balance the potential reward of the transaction with the risk that the party must bear under the purchase agreement. When a “stalemate” occurs, a party should promptly assess the impact of the issue in question on that party’s risk/reward analysis. If conceding on the issue results in an unacceptable risk to the party (without corresponding reward), the party must either obtain the concession from the other party on that issue, or walk away from the transaction. The sooner this determination can be made the better.

In order to prepare to make decisions during the process of negotiating a transaction, a party should know its risk/reward profile, and prioritize its interests prior to undertaking a transaction. In doing so, with the assistance of its professional advisors, the party will be better prepared to make critical decisions during the negotiation process. A prompt but thoughtful decision may result in a resolution of the disputed issue; or a determination that the transaction is not in its best interest. Either way, the party will avoid an endless run around the treadmill with Astro.

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