15 Mind Games & Tactics Mid-Market Negotiators Use to Outsmart Buyers & Sellers

In the world of Mergers and acquisitions (M&A), its a high-stakes, where every move can make or break a deal. In this cutthroat arena, the deal structure alone can determine success, even before delving into valuation assumptions, inherent risks, and other pitfalls often overlooked during due diligence.

Picture Ivy League graduates grinding through 60+ hour weeks as interns, all striving for a coveted spot at top private equity firms or investment banks. The rivalry is intense, and so is the competition for acquisition targets.

When you play poker, does your opponent reveal their hand before you place your bet? Why should the rules be any different in M&A? In the mid-market range, understanding the mind games and negotiation tactics used by advisors and the other party is crucial and could cost you millions if you don't.

Here are some of the strategies often employed to outsmart buyers and sellers:

1. Information Asymmetry

The Tactic: Advisors and mid-market companies often leverage information asymmetry, where one party has more or better information than the other.

Identifying the Tactic: Look for vague answers, reluctance to share detailed information, or inconsistent data. Ask specific questions and gauge their responses to see if they are withholding key details.

Defense: Conduct thorough due diligence, seek independent advice, and ensure you have access to comprehensive information.

Our Firm’s Response:  "At this time, we don’t believe negotiations warrant that level of information. We are under no obligation to provide proprietary or confidential information until we have assurance that we are aligned and your side is committed to closing the transaction. Once we are under exclusivity, we can further discuss."

2. Anchoring

The Tactic: Setting an initial offer or valuation to influence the subsequent negotiation range.

Identifying the Tactic: Notice if the initial offer seems disproportionately high or low compared to your valuation. Verify with independent appraisals.

The Tactic: Setting an initial offer or valuation to influence the subsequent negotiation range. By presenting an opening offer that is either significantly high or low, the counter-party aims to set the reference point for all future discussions, making their position seem more reasonable over time.

Identifying the Tactic: Be alert if the initial offer seems disproportionately high or low compared to your valuation. This can often be a deliberate attempt to anchor the negotiation range. Verify the offer with independent appraisals, market data, and industry benchmarks to assess its validity.

Defense: To counter the anchoring tactic, it is crucial to perform your own thorough valuation and remain steadfast in your data-backed proposals. Here’s how:

• Market Research: Conduct extensive research on the current market conditions, trends, and comparable transactions to establish a realistic valuation range.
• Financial Analysis: Analyze the company’s financial statements, including income statements, balance sheets, and cash flow statements, to understand its financial health and prospects.
• Comparable Analysis: Look at similar companies within the industry that have been recently sold or valued to gain insight into appropriate valuation multiples.
• Expert Consultation: Reach out to industry experts, financial analysts, and other subject matter experts to get an informed perspective on the company’s value and the factors influencing it.
• Internal and External Factors: Consider both internal factors (like the company's operational efficiency, management quality, and growth potential) and external factors (such as market dynamics, economic conditions, and competitive landscape) that impact the company’s valuation and trajectory.

By arming yourself with comprehensive, data-driven insights, you can confidently counter an anchoring attempt with a well-substantiated valuation, ensuring that the negotiation remains grounded in reality and fairness.

Our Firm’s Response: "We appreciate your initial offer. However, our valuation indicates a different figure based on our comprehensive analysis. Let's discuss these numbers in detail."

3. Time Pressure

The Tactic: Imposing tight deadlines to pressure the other party into making hasty decisions. By creating a sense of urgency, the counterparty aims to rush you into agreeing to terms without adequate consideration or due diligence.

Identifying the Tactic: Look out for sudden or last-minute deadlines and repeated claims that the deal must close quickly. Assess whether the proposed timeline is realistic and necessary by comparing it to standard industry practices and the complexity of the transaction.

Defense: To counter time pressure tactics, manage your timeline effectively and refuse to be rushed into decisions. Here’s how:

• Establish a Realistic Timeline: Base your timeline on thorough research and industry benchmarks. For example, refer to similar transactions within the same industry and their timeframes. Public data and reports can provide average timelines, such as "a transaction in this industry typically takes X months."
• Cite Industry Standards: Use data from reputable sources like Bank A, B, and C, which show that transactions of a similar size and structure usually take between 6 to 9 months to complete. This supports your stance that any quicker timeline is unrealistic and impractical.
• Communicate Clearly: Clearly articulate to the other party why a realistic timeline is crucial. Highlight the importance of thorough due diligence and careful consideration to ensure a successful and fair transaction.
• Push Back on Unreasonable Deadlines: Firmly but professionally push back against any attempts to impose unreasonable deadlines. Insist on a timeline that allows for proper evaluation and negotiation.
• Plan and Prepare: Anticipate potential time pressure tactics by having a well-organized plan. Break down the transaction process into manageable phases with specific milestones, ensuring that each step receives the necessary attention and scrutiny.

By grounding your negotiation timeline in data and industry standards, you can resist undue pressure and ensure a thorough, well-considered decision-making process.

Our Firm’s Response: "We understand the need for urgency, but we require sufficient time to ensure a thorough and fair process. Let’s agree on a realistic timeline moving forward."

4. Good Cop/Bad Cop

The Tactic: One negotiator adopts a reasonable and accommodating demeanor, while the other takes a tough and demanding stance. This classic negotiation strategy aims to manipulate emotions and pressure you into concessions by creating a contrast between the "good" and "bad" negotiators.

Identifying the Tactic: Pay attention to alternating personalities and behavioral patterns during negotiations. If one party seems overly friendly and accommodating while another is harsh and demanding, it’s likely a coordinated effort to unsettle and manipulate you.

Defense: Recognize the tactic and maintain a consistent, objective approach in your responses. Focus on the issues at hand rather than the personalities involved. Here’s how:

• Stay Objective: Keep your responses neutral and fact-based. Avoid being swayed by emotional appeals or intimidation tactics.
• Consistent Communication: Communicate consistently with all parties. Ensure that your responses and positions remain the same, regardless of who you are speaking with.
• Focus on Key Terms: Direct the conversation towards the key terms and issues of the negotiation. Avoid getting sidetracked by personal dynamics or emotional appeals.
• Document Interactions: Keep detailed notes of all interactions. Documenting the behaviors and statements of each party can help you remain focused and provide a clear record of the negotiation process.
• Set Boundaries: Politely but firmly set boundaries if the behavior becomes too manipulative. Remind the negotiators that the goal is a fair and mutually beneficial agreement.

Our Firm’s Response: "We appreciate the perspectives from both sides. Let’s focus on the key terms and find a mutually beneficial solution."

5. Scarcity

The Tactic: Claiming that there are other interested parties or that the deal must be closed soon to create a sense of urgency. This tactic leverages the fear of missing out (FOMO) to push you into making hasty decisions without thorough consideration.

Identifying the Tactic: Be on the lookout for phrases like "we have other offers" or "this opportunity won't last long." To identify scarcity tactics, critically evaluate the claims about other interested parties or impending deadlines. Look for concrete evidence to support these assertions, such as market interest, competitive bids, or genuine time constraints.

Defense: To effectively counter scarcity tactics, verify the claims and stay focused on your negotiation strategy. Here’s how:

• Request Evidence: Politely ask for proof of other interested parties or time-sensitive reasons for closing the deal quickly. Genuine urgency will typically be supported by documentation or third-party confirmations.
• Market Analysis: Conduct your own market research to determine the level of interest in similar transactions. Understand the typical demand and interest in such deals within the industry to assess the credibility of the scarcity claims.
• Independent Verification: Use third-party sources, such as industry reports or feedback from other professionals, to verify claims about market interest or deadlines.
• Maintain Your Strategy: Stick to your original negotiation plan and timeline. Don't let claims of scarcity derail your approach. Focus on the value and terms of the deal rather than the perceived urgency.
• Evaluate Alternatives: Always have alternative options or backup plans. Knowing you have other choices reduces the pressure to rush into a deal based on scarcity claims.

Our Firm’s Response: "We understand the urgency, but we need to validate the current market interest before proceeding further."

6. Cherry Picking

The Tactic: Highlighting the best aspects of the deal while downplaying or ignoring the negatives. This approach is intended to make the deal seem more attractive by focusing solely on its positive features, potentially leading you to overlook important risks or downsides.

Identifying the Tactic, Probing Questions, Missing Information, & Conducting Independent Research: Be alert if the conversation or documentation disproportionately emphasizes positive aspects without a balanced discussion of potential risks or negatives. This can include overemphasizing financial projections, market potential, or competitive advantages while minimizing or omitting challenges, liabilities, or market threats.

Defense: To counter the cherry-picking tactic, conduct a comprehensive and balanced analysis of all aspects of the deal. Here’s how:

• Comprehensive Due Diligence: Engage in thorough due diligence that covers all areas of the deal, including financial health, market position, operational efficiency, legal standing, and potential liabilities.
• Risk Assessment: Identify and assess potential risks and downsides. This can include market volatility, regulatory challenges, existing debts, pending litigation, or any operational inefficiencies that could impact the deal.
• Seek Independent Verification: Obtain third-party evaluations and audits to verify the claims made by the other party. Independent financial audits, market analyses, and legal reviews can provide a more accurate picture.
• Balanced Review: Ensure your review process covers both positives and negatives. Create a balanced scorecard that highlights strengths, weaknesses, opportunities, and threats (SWOT analysis).
• Scenario Analysis: Conduct scenario planning to understand how different risks and opportunities could impact the deal under various conditions. This helps in evaluating the resilience of the deal against potential challenges.
• Consult Experts: Bring in subject matter experts, such as financial analysts, market consultants, and legal advisors, to provide insights and identify any overlooked issues.

Our Firm’s Response: "While the positive aspects are clear, we also need to address these specific concerns. Let’s review all factors comprehensively." or "Our offer is based on a holistic valuation based through a balanced assessment that incorporates both positive and negative findings of target company."

7. Red Herrings

The Tactic: Introducing irrelevant or minor issues to distract from the main negotiation points. This tactic aims to divert attention away from crucial aspects of the deal, creating confusion and delaying progress.

Identifying the Tactic, Monitoring Topic Shifts, & Evaluating Relevance: Recognize when the conversation shifts towards less important or unrelated topics. These distractions can take the form of excessive focus on minor details, irrelevant side issues, or tangential topics that do not impact the core aspects of the negotiation.

Defense: To effectively counter the red herring tactic, maintain a strong focus on your primary objectives and ensure the discussion remains on track. Here’s how:

• Set Clear Objectives: Before entering negotiations, establish clear and concise objectives. Know what your key points are and prioritize them throughout the discussion.
• Create an Agenda: Develop a detailed agenda for each negotiation session. Outline the main topics to be covered and stick to this agenda to keep the conversation focused.
• Identify and Acknowledge Red Herrings: When a distraction arises, acknowledge it without letting it derail the conversation. Politely but firmly steer the discussion back to the main issues. For example, "I understand that this is a concern, but let's focus on resolving the primary issues first."
• Use Summaries: Regularly summarize the key points and progress made during the negotiation. This helps to refocus the conversation and remind everyone of the main objectives.
• Stay Organized: Keep detailed notes and records of the negotiation. Documenting the main points, agreements, and outstanding issues ensures that you have a clear reference to return to if the conversation veers off course.
• Ask Clarifying Questions: When irrelevant issues are brought up, ask clarifying questions that highlight their lack of relevance. For example, "How does this impact our main objective of X?"
• Delegate Minor Issues: If minor issues are raised that need to be addressed, delegate them to a sub-team or agree to discuss them at a later stage. This allows the primary negotiation to remain focused on critical points.

Our Firm’s Response: "Let’s stay focused on the primary objectives and material facts of this negotiation and address any secondary issues later."

8. Nibbling

The Tactic: Requesting small additional concessions after the major points of the deal have been agreed upon. This tactic involves making seemingly minor requests that, cumulatively, can significantly alter the terms of the deal in favor of the requesting party.

Identifying the Tactic using Pattern Recognition & Track Changes : Recognize the pattern of continual small requests following a general agreement. These requests often appear insignificant on their own but can add up to substantial changes. Pay attention to any attempts to reopen discussions on issues that were previously settled.

Defense: To effectively counter the nibbling tactic, establish clear boundaries and be prepared to refuse last-minute requests. Here’s how:

• Set Clear Boundaries: Define and communicate your boundaries early in the negotiation process. Clearly outline which terms are non-negotiable once an agreement is reached on the major points.
• Document Agreements: Ensure all agreements are thoroughly documented as they are made. Having a written record helps to prevent attempts to renegotiate settled terms. Each party should sign off on these agreements to formalize them.
• Anticipate Nibbling: Be proactive by anticipating potential nibbling attempts. Consider including a clause in the agreement that no further concessions will be made once the primary terms are agreed upon unless mutually agreed to by both parties.
• Stay Firm: Be prepared to firmly say no to last-minute requests. Remind the other party of the agreed-upon terms and the importance of honoring the initial agreement.
• Cost-Benefit Analysis: Evaluate each request on its own merits, considering the cumulative impact of all nibbling attempts. Ensure that any additional concessions are truly warranted and beneficial to the overall deal.
• Consult Your Team: Regularly consult with your legal and financial advisors to ensure that any additional requests are carefully scrutinized and that their implications are fully understood.

Our Firm’s Response: "We’ve agreed on the main terms. Additional requests will need to be evaluated separately and may not be accommodated."

9. Emotional Manipulation

The Tactic: Utilizing emotional appeals such as flattery, friendliness, or intimidation to influence decisions. This tactic aims to create an emotional response that can cloud judgment and lead to decisions that may not be in your best interest.

Identifying the Tactic, Noticing Emotional Shifts, & Analyzing Motivations: Be vigilant for attempts to sway your decisions through emotional manipulation. This can take various forms, including excessive praise, forming a false sense of camaraderie, or using intimidation and pressure tactics. Recognize when conversations shift from objective facts to emotional appeals.

Defense: To counter emotional manipulation, maintain professional detachment and base your decisions on objective criteria. Here’s how:

• Stay Objective: Focus on the facts, data, and key terms of the deal. Make decisions based on objective analysis rather than emotional responses.
• Professional Boundaries: Establish and maintain professional boundaries. Be friendly but firm, ensuring that personal rapport does not influence your decision-making process.
• Recognize Emotional Appeals: Identify when flattery, friendliness, or intimidation is being used. For example, if the other party excessively compliments your expertise or attempts to build an undue personal connection, recognize it as a potential tactic.
• Prepare Responses: Have prepared responses to deflect emotional manipulation. For instance, if flattered, you might say, "Thank you for your kind words. Let’s focus on the data at hand."
• Consult with Your Team: Regularly discuss the negotiation with your team to ensure that you remain grounded in objective criteria. External perspectives can help identify when emotional manipulation is at play.
• Use Data-Driven Decisions: Base your decisions on thorough analysis, financial reports, market research, and other objective data. Ensure all decisions are supported by solid evidence.
• Take Breaks: If you feel overwhelmed or pressured, request a break. Stepping away from the negotiation table can help you regain your composure and perspective.

Our Firm’s Response: "We appreciate the sentiments, but let’s keep our focus on the objective terms and data at hand."

10. Due Diligence Fatigue

The Tactic: Overloading the buyer or seller with extensive due diligence requests to create fatigue and gain concessions. This tactic involves inundating the other party with a barrage of requests for information, documentation, and clarification, leading to exhaustion and a willingness to concede on important points to expedite the process.

Identifying the Tactic, Monitor the Volume & Frequency, & Timing of Requests: Monitor the volume and frequency of due diligence requests throughout the negotiation process. Pay attention to any patterns of excessive or repetitive inquiries that seem designed to overwhelm rather than facilitate the due diligence process.

Defense: To counter due diligence fatigue tactics, adopt strategies to pace yourself, organize responses effectively, and delegate tasks where possible. Here’s how:

• Strategic Planning: Develop a comprehensive due diligence plan early in the negotiation process. Outline key areas of inquiry and prioritize requests based on their importance to the deal.
• Organized Documentation: Maintain a well-organized repository of documentation and information relevant to the due diligence process. This allows for efficient retrieval and timely responses to requests.
• Clear Communication: Establish clear lines of communication with the other party’s due diligence team. Set expectations regarding the frequency and format of requests and coordinate responses accordingly.
• Delegation of Tasks: Delegate responsibility for gathering and preparing specific types of information to appropriate team members or advisors. This distributes the workload and ensures that each aspect of the due diligence process receives the necessary attention.
• Regular Updates: Provide regular updates on the progress of due diligence activities to all involved parties. Transparency and communication help to alleviate concerns and demonstrate proactive management of the process.
• Negotiate Reasonable Timelines: If faced with unreasonable due diligence timelines, push back and negotiate more realistic deadlines. Emphasize the importance of thoroughness over speed to ensure a successful outcome.
• Take Breaks: Recognize the signs of due diligence fatigue and allow for breaks when needed. Stepping away from the process temporarily can help maintain focus and prevent errors due to exhaustion.

Our Firm’s Response: Sell-side: "We understand the need for thorough due diligence. We’ll provide the requested information in stages to ensure accuracy and completeness. Buy-side: To facilitate an efficient process, we kindly request that the time for due diligence officially commence once we have received all the due diligence items upfront. This will allow us to review the information comprehensively and provide timely feedback, ensuring a smooth and productive negotiation process for both parties."

11. Bluffing

The Tactic: Pretending to walk away from the deal or showing disinterest to gain leverage. This tactic involves creating the perception that one party is willing to abandon the negotiation in order to pressure the other party into making concessions or accelerating the deal process.

Identifying the Tactic: Evaluate the seriousness of any threats to walk away or expressions of disinterest. Consider the context of the negotiation and the motivations of the other party. Look for inconsistencies or signs that the bluff may not be genuine.

Defense: To counter the bluffing tactic, assess the credibility of the threat and be prepared with your own walk-away points. Here’s how:

• Evaluate Intentions: Consider whether the other party has a genuine interest in reaching a deal or if their statements are merely a negotiation tactic. Look for signs of sincerity in their communications and behavior.
• Assess Alternatives: Determine your alternatives to reaching a deal with the current party. Having strong alternatives strengthens your position and reduces the effectiveness of bluffing tactics.
• Set Walk-Away Points: Identify specific thresholds or conditions under which you would be willing to walk away from the negotiation. This could include reaching an impasse on critical terms, encountering unethical behavior, or facing unreasonable demands.
• Maintain Negotiation Leverage: Focus on maintaining negotiation leverage by highlighting your strengths and the value you bring to the deal. Avoid appearing desperate or overly eager to reach an agreement, as this can weaken your position and make you more susceptible to bluffing tactics.
• Seek Clarification: If you suspect bluffing, seek clarification from the other party to better understand their intentions and motivations. Direct communication can help dispel misunderstandings and reveal whether the threat is genuine.
• Stay Calm and Confident: Remain composed and confident in your negotiation approach. Demonstrating resolve and confidence in your position can undermine bluffing attempts and strengthen your bargaining position.

Our Firm’s Response:"We value the opportunity to negotiate in good faith and are committed to reaching a mutually beneficial agreement. However, we must ensure that any threats to walk away are based on genuine concerns and align with our strategic objectives."

12. Fragmentation

The Tactic: Splitting the deal into smaller parts to make it seem more manageable but potentially more complex. This tactic involves dividing a larger deal into smaller, seemingly more manageable segments. While this may appear to simplify the negotiation process, it can actually increase complexity and introduce hidden risks.

Identifying the Tactic: Notice if the deal is being fragmented into smaller components or sub-deals. This may manifest as separate agreements for different aspects of the transaction, such as pricing, terms, or contingencies. Consider the overall coherence and impact of the fragmented structure on the deal's success.

Defense: To counter the fragmentation tactic, evaluate the overall impact and ensure that each part of the deal is beneficial. Here’s how:

• Assess Coherence: Evaluate the coherence of the fragmented structure and its alignment with the overarching goals of the deal. Consider whether dividing the deal into smaller parts enhances or detracts from its overall success.
• Identify Hidden Risks: Look for potential hidden risks or complications that may arise from the fragmented structure. Assess whether the division of the deal could lead to inconsistencies, conflicts, or gaps in the agreement.
• Evaluate Comprehensive Impact: Consider the comprehensive impact of each individual component of the deal. Ensure that each part contributes positively to the overall value and objectives of the transaction.
• Seek Integration: Look for opportunities to integrate or consolidate fragmented components of the deal where possible. Streamlining the negotiation process and reducing complexity can enhance efficiency and clarity.
• Clarify Dependencies: Identify any dependencies or interdependencies between fragmented components of the deal. Ensure that these dependencies are clearly understood and addressed to prevent potential conflicts or delays.
• Maintain Transparency: Maintain transparency and open communication throughout the negotiation process. Ensure that all parties have a clear understanding of the fragmented structure and its implications for the deal.

Our Firm’s Response: "We prefer to address the deal in its entirety to ensure all components are aligned and mutually beneficial."

13. Over-Optimism or Pessimism

The Tactic: Painting an overly optimistic or pessimistic picture of the company’s future prospects.

Identifying the Tactic: Be aware of extreme projections and validate with third-party data and analysis.

Defense: Rely on independent forecasts and your own market analysis.

Our Firm’s Response: "We appreciate your outlook but will rely on independent assessments to ensure balanced expectations."

14. Use of Expert Opinions

The Tactic: Bringing in experts to validate claims and sway opinions.

Defense: Consult your own experts to counterbalance external opinions.

Identifying the Tactic: Evaluate the credibility and impartiality of presented experts. Compare with advice from your own experts.

Our Firm’s Response: "We value expert input and will also consult with our advisors to form a comprehensive view."

15. Legal and Contractual Maneuvering

The Tactic: Inserting complex legal terms or conditions that favor one party. This tactic involves leveraging legal language and contractual provisions to gain advantages or shift risks in favor of one party over the other.

Identifying the Tactic: Scrutinize legal documents, including contracts and agreements, for any clauses or terms that appear one-sided or disproportionately benefit one party. Look for language that may be overly complex or ambiguous, making it difficult to interpret or enforce.

Defense: To counter legal and contractual maneuvering, it is essential to have a competent legal team review all documents thoroughly and negotiate terms that are fair and equitable. Here’s how to strengthen your defense:

• Comprehensive Review: Engage your legal team to conduct a detailed review of all legal documents associated with the deal. This includes contracts, agreements, and any other legal instruments that may impact the transaction.
• Identify Unfavorable Terms: Scrutinize the terms of the documents to identify any clauses or provisions that may be disadvantageous to your interests. Pay particular attention to language that may be ambiguous or open to interpretation.
• Assess Implications: Evaluate the implications of the legal terms on your rights, obligations, and liabilities under the agreement. Consider how each provision may impact the overall balance of power between the parties.
• Negotiate Fair Terms: Work with your legal team to negotiate terms that are fair, reasonable, and balanced. This may involve seeking amendments or revisions to problematic clauses to ensure that the agreement reflects the mutual interests of both parties.
• Seek Clarity: Clarify any ambiguities or uncertainties in the legal language to ensure that the terms of the agreement are clearly understood by all parties. This helps to prevent misunderstandings and disputes down the line.
• Consider Alternatives: Explore alternative approaches or solutions to address contentious legal issues. Be open to creative solutions that preserve the integrity of the agreement while protecting your interests.
• Maintain Vigilance: Remain vigilant throughout the negotiation process to ensure that no new, unfavorable terms are introduced at the last minute. Continuously monitor the drafting and revision of legal documents to safeguard against potential surprises.

Our Firm’s Response: "We appreciate the importance of ensuring that all legal terms and conditions are fair and equitable for both parties. We will work closely with our legal team to conduct a thorough review and negotiate terms that align with our mutual interests."

As Henry Ford wisely said, "Whether you think you can, or think you can’t … you’re right." This powerful statement underscores the importance of mindset in achieving success.

When it comes to navigating the complexities of mergers and acquisitions, don't become your own worst enemy. By maintaining a positive and proactive outlook, you can overcome obstacles and seize opportunities with confidence.

Remember, your beliefs shape your reality. So, believe in your ability to overcome challenges, adapt to new situations, and drive progress forward. With the right mindset and determination, you can chart a course toward success in your M&A journey.