In the first parts of this series of articles we looked at the areas of conflict and the possible uses of mediation in corporate transactions. This article summarises the requirements for mediators in corporate transactions.
Requirements for corporate transactions
In mediation, field competence usually plays only a subordinate role. This is because mediators usually work on the basis of process and not on the basis of content. However, there are situations and conflicts that require a high degree of expert knowledge to be dealt with by a mediator. These include, for example, dealing with mobbing cases or working with children.
At Corporate transactions and the associated processes often require a mediator with transaction experience. In addition to the basic requirements analysed in the previous section, this mediator should in any case meet further process-specific requirements. The field expertise of the mediator is more important in transactions than in internal conflicts with less complex structures.
Read economic data
The entire process of the business transaction is accompanied by economic analyses, data and statistics of the object to be sold. Above all, the documents mentioned in the previous section, the BWA, the list of totals and balances, the annual financial statement or the balance sheet, should be mentioned here. Reading and understanding such documents is not only an absolute necessity for buyers and sellers. The mediator must also be able to read and interpret business data. This is rooted in the control over the process through questions. Especially in the case of closed questions, the mediator can only use the instrument of asking questions if the answer to this question is comprehensible to the mediator.
Technical terms
Corporate transactions are complex and deviate greatly from usual purchase agreements. The communication between the parties is conducted with many technical terms. Therefore, it is often difficult for laypersons to understand. In addition, there are many peculiarities in each corporate transaction. Although there is a roughly standardised process, every transaction is different. For example, the composition of the shareholders or the type of company is always different. Each company sale requires special consideration and processing. Due to these facts, a mediator with M&A experience has a clear advantage and can lead and follow the mediation process.
Special feature: Project
The entire process is set up as a project by the buyer and seller. The project ’sale of a company’ or ‘purchase of a company’ does not differ from the usual definition of a project. They are all characterised by a time limit. Time limits always bring a high stress factor into the process, especially when the final deadline or the last possible date is approaching. In this phase, the accumulation of conflicts between the parties usually increases. The mediator now needs an instrument that allows him to deal well with the stress, which he also experiences as a litigant, and to continue to accompany the parties through the mediation.
Almost exclusively entrepreneurs and well-trained advisors are involved in a transaction. This circle places high demands on the professionalism of a mediator. This is because buyers and sellers regularly lead people and thus exhibit a natural authority. A mediator in M&A processes must be able to deal with these personalities and bring his own respected authority into the process.
The mediator as a preventive instrument
Participants and litigants in corporate transactions are increasingly turning to a mediator as a preventive instrument. The preventive use of a mediator is an instrument that noticeably relieves the parties involved, especially with regard to the execution of the business transfer.
Deal Mediation
In mediation in M&A processes, the concept of the Deal Mediation established. Deal mediation is already integrated into project and process planning. Here, at the beginning of the planning, the possible process steps are identified in which experience has shown that there is potential for conflict. With the exception of the “negotiation” step, deal mediation is designed as a short-term mediation. This is due to the time pressure that often occurs in the overall process.
This is a preventive measure. Therefore, a basic and comprehensive clarification of all parties involved takes place at the beginning. Last but not least, no mistrust should be created between the parties. Finally, a deal mediator proposes a procedure for conflict resolution even though there are no conflicts yet. Especially at an early stage of a transaction, mediation requires a great deal of tact on the part of the mediator. This is necessary, for example, when negotiating the parameters of the NDA. This is because the seriousness of the parties is already identified here and the basis for further negotiations is laid.
Increase chances of graduation
In other words, the chances of concluding a corporate transaction increase with a planned deal mediation. After all, the participants in the process deal with their interests intensively and at an early stage. In addition, they inform the other partner through the process. The mediation process thus creates transparency in an M&A process. It thus provides a certain basis of trust for the acquisition of the company.
If one looks at the process extended by mediation, the time frame appears at first glance to be extended and more protracted. If, on the other hand, one analyses the regular behaviour of the participants in the process with regard to the length in negotiations of individual parameters, it becomes clear: preventive mediation can shorten the process, in some cases considerably. This is due to the fact that mediation can eliminate many possible points of dispute in advance. This can eliminate repeated and protracted rounds of negotiations.
Reduce conflicts
Mediation can also minimise or even eliminate the area of conflict described at the beginning regarding seller loyalty. Because a Company succession mediation generally promotes the sustainability of negotiations. However, this can also be a disadvantage for the seller’s line of argument if he wants to leave the company as quickly as possible after closing. This is because transparency is encouraged and demanded in this process.
For the M&A advisor or M&A boutique, the implementation of deal mediation has many advantages. The advisors only earn their success commission if the transaction is concluded through a notarised purchase agreement. In addition, there is the image gain on the market, with many successful transactions having a functioning post-merger phase. Deal mediation can be a decisive instrument here.
For a successful business transaction, a correct business valuation is indispensable. Learn more in the free webinar The 7 most expensive business valuation mistakes for buyers or sellers with KERN founder Nils Koerber.
Tips for further reading:
The mediator in the sale of a company
Comment: Unresolved company successions endanger our prosperity
Advice traps in the process of business succession
Selling a business: Why a pure success fee makes it difficult to provide serious advice
The costs of a business succession or an M&A project
The 5 most important contents of an entrepreneurial emergency kit
FAQ
Field competence usually plays only a subordinate role in mediation. After all, the mediator’s work is usually process-related and not content-related. But some moments and conflicts require a high degree of expertise. Therefore, a mediator with transactional experience is often needed. In addition to the basic requirements already mentioned, this mediator should definitely meet further process-specific requirements. Firstly, the mediator should understand the economic aspects and technical terms. Only then can he mediate effectively with the help of closed questions. Secondly, he or she should be a stable personality. After all, different managers meet in a corporate transaction.
The term deal mediation has become established in mediation in M&A processes. As part of the process and project planning, the steps in which experience shows that there is potential for conflict are identified right at the beginning. Due to the time pressure, deal mediation is designed as a short-term mediation, with the exception of the “negotiation” step. Deal mediation needs a lot of clarification and tact at the beginning. Finally, deal mediation is brought into play as a conflict resolution process even before conflicts arise. Overall, deal mediation primarily increases transparency and thus creates mutual trust for the corporate transaction. Finally, the participants in the process deal with their interests early and intensively and inform each other about them. In this way, deal mediation not only makes the sale of a company more successful. It also shortens the process, in some cases considerably.
