5 Best Practices for Deal Formation

There are infinite pathways to “yes”, but not all of them are worth pursuing in your deal. Due diligence is the key to executing effective negotiations; the communication between your team and the other side in, say, a merger, acquisition, R&D contract, consulting contract, or other type of contract can be thought of as the portion of the iceberg visible to those above the surface. As we all know, the “invisible” part of the iceberg makes up the vast majority of its mass. Below, we’ve explained five key areas for producing an advantageous deal for your company. 

1. Involve Key Internal and External Stakeholders. You need your team members who have specialized knowledge or competencies in addition to those privy to certain proprietary information. Bringing your team together well before negotiations commence will ensure that you and your deal team are negotiating based on the best information available. 

You also need to make sure that the right person is on the other side of the negotiating table. It’s best to confirm beforehand that you’re negotiating with the decision-maker. At a certain point in the deal process, speaking with someone without the authority to bind an agreement is a waste of time. 

2. Use an Appropriately Tailored Term Sheet. It is easy to get a term sheet template from an online source. However, there is a greater than 50 percent chance these forms will not be structured in a way or contain essential terms applicable to your business and industry. Though it is not legally binding, the term sheet implements a foundation upon which your negotiations may build. Absent a straightforward yet thorough term sheet for your deal, the due diligence, negotiations, and ultimately the deal performance will be sub-optimal. 

3. Prepare for a Mentally and Psychologically Taxing Process. Plenty of attention and preparation should address the non-technical aspects of any deal negotiation. A common cause of the collapse of mergers or acquisitions negotiations is deal fatigue. The genesis of deal fatigue can begin with the memorandum of understanding or term sheet; without a clearly defined end goal and road map, nerves will get frayed and patience runs thin. The loss of composure often results in negotiators’ giving in to unfavorable deal terms. Compromising on critical deal criteria may or may not be worse than the collapse of negotiations. 

4. Secure Sensitive Information. Proactively managing your company’s proprietary information means setting up a secure, password-protected database of data and other pertinent materials. Consider using a database with tiered access so the most sensitive information goes to those who actually need it. Don’t forget about a comprehensive non-disclosure agreement for everyone involved in preparations and negotiations.

5. Keep a “North Star” to Guide Your Actions in Negotiations. Chasing down every shiny object or getting distracted by the peripheral components of a business deal can lead to companies straying from the ultimate goal of creating value. Legal counsel that affirms your objectives by providing targeted and focused services is the most effective way to stay on course while forming a deal.

Baker Jenner routinely directs transactions and deals within highly regulated industries and fields, including pharmaceutical, nutraceutical, and plenty of others under the purview of the Food and Drug Administration. Our attorneys are able to keep the simple things simple and concentrate on the deal terms that are important to you. Set up a conversation with us soon so we can talk to you about meeting your legal needs.

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Baker Jenner LLLP

Baker Jenner LLLP is a business solutions law firm. We partner with clients to achieve their goals while managing transactional, regulatory, and legal risks.
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