More and more business owners are choosing mediation to transfer their business, enter into a merger or important partnership, or to give a key manager a chance to buy in. Mediation is for divorces or workplace conflicts, right? Nope.
Mediation is a form of guided and structured negotiation with the help of an independent (business) mediator. If there are conflicting interests and there is a clear desire to come to a joint transaction, mediation is an appropriate process form. Buyer and seller by definition have a conflict of interest and possibly the desire to keep the relationship good during and after the transfer. But how do you do that?
Rules of play
In a regular transfer process, the advisers determine what the transfer process looks like and what the content of the discussions is. Whether or not supported by thick valuation reports, legally sound agreements and book audits. An in-house team of advisers consists of valuation experts, accountants, lawyers, tax specialists and other experts. These advisers are in charge and largely determine the content and progress.
Mediation for acquisitions and transfers has a number of ground rules:
- Autonomy. The buyer and seller conduct the talks and negotiations in the presence of an independent mediator. The mediator has a script for the transaction but the participants set the agenda and pace;
- Confidentiality. The parties specify in advance who may be informed of the content of the discussions. Outside that limited circle, nothing discussed within the mediation may be shared;
- Flexibility. Within mediation, participants are allowed to make proposals to each other. They may also modify or withdraw them. You are not bound to a proposal until you sign the final agreement;
- Knowledge sharing. Experts are invited into the mediation to give their views or advice to both parties. The participants come to their own decision;
- Voluntariness and commitment. Mediation is voluntary but not without obligation. A participant may always end the mediation without giving reasons. But as long as the mediation is ongoing, the participants have an obligation of effort to find solutions together.
Important condition
A mediation process is based on the belief that the parties themselves are capable of making a deal. The mediator has the roadmap to reach a transaction. If outside knowledge is needed, it is called upon but the parties make the decisions themselves. This requires that the buyer and trust each other.
When transfer mediation?
This form of mediation is ideally suited when parties attach great importance to maintaining a good relationship and take control of the transfer or sale. No teams of advisers writing thick reports and conducting long negotiations. The participants want dialogue rather than contradiction; they want the conference table rather than the arena. Consider:
- Family businesses
- Sale to a trusted or affiliated buyer
- Purchase transactions of new partners, mates or board members
- Mergers, joint ventures and partnerships
- Redistribution of ownership by entry or exit of shareholders
