Negotiation: How Points Get Traded

14.1What M&A negotiation actually looks like

Forget the film version. There is no single dramatic meeting where the deal is won. What actually happens is this: one side circulates a draft SPA; the other returns a mark-up — a revised version showing every proposed change; the first side responds with a mark-up of the mark-up. In parallel, the lawyers maintain an issues list — a running table of every open point, recording each side’s current position and the point’s status — and hold structured calls to work through it. Between calls, points settle in a steady stream of small trades — an email conceding one thing, a rider compromising another.

Most points are settled lawyer-to-lawyer, because most points are about allocating legal risk and have well-worn compromise positions. A handful — usually the ones that are really about money — are escalated to the principals: the clients themselves. And the deal signs at the exact moment the issues list is empty. Not before, and (in a well-run deal) not much after.

One piece of law frames all of it: under English law there is no duty to negotiate in good faith — an agreement to negotiate is unenforceable for uncertainty (Walford v Miles). Until signing, either side may harden its position or walk away.

14.2Preparation beats improvisation

Good negotiators arrive with the whole negotiation already mapped. The standard tool is a positions grid: for every open point, three entries and an owner —

• Our ask — the opening position, pitched somewhat better than you expect to get;
• Our fallback — the compromise your client has already approved, so you can move on a call without breaking to take instructions;
• Our walk-away — the position so bad your client would rather lose the deal. Preparing the grid teaches you something useful: genuine walk-aways are rare, and knowing the two or three that exist is half the strategy;
• The owner — who decides. Whether claims notices need “reasonable details” is a legal call for the lawyers; whether the cap is 20% or 25% is a commercial call that belongs to the client — never give it away unbriefed.

The second piece of preparation is an honest assessment of leverage — who can more credibly say no. Ask three questions. First, is there competitive tension? A seller running an auction with three bidders can answer most demands with “the other bidders aren’t asking for that”; a seller who has granted exclusivity (Chapter 6) has traded that leverage away for certainty. Second, who needs the deal more? Third, who is under timetable pressure? A private equity or VC fund at the end of its fund life must return cash to investors and cannot wait a year. A buyer with a strategic deadline — a licence it needs before a competitor gets one — is just as squeezed. In Project Sunrise both sides carry some of this: Meridian is a VC vehicle whose investors want their exit, while Atlas’s realistic alternative to buying Solaris is a multi-year MiCA authorisation process of its own.

Negotiation theory gives this an acronym: your BATNA — best alternative to a negotiated agreement. In plain English: what actually happens to your client if this deal dies? A party with a strong alternative (another bidder, a credible plan B) can hold positions calmly; a party with no alternative should pick its battles with care. Much of what a corporate finance adviser like Harborne & Co does is manufacture a believable alternative for the seller.

14.3“Market” as gravity

The sentence you will hear more than any other is: “that’s not market.” It means: “your position is outside the range commonly agreed on comparable deals, so you should move.” It is an appeal to a norm — and it works. Partly that is because nobody wants to hold a position no one else holds. Partly it is because the sentence lets a side concede without losing face: not surrendering, just conforming to the market.

Is there really such a thing? Up to a point. Published deal-point studies — periodic surveys of what signed SPAs actually said about caps, baskets, time limits and the rest — exist for both the US and European markets. Good negotiators know the current numbers. But “market” always depends on context. An auction produces more seller-friendly terms than a bilateral deal. A deal backed by warranty & indemnity insurance (Chapter 11) bears no comparison with a seller-recourse deal like Sunrise. On W&I deals the seller’s cap is often a nominal €1, which tells you nothing about what an uninsured seller should accept. Sector and deal size matter too: a €42m regulated fintech sale is not a €2bn infrastructure deal.

This is a place where a junior genuinely adds value. The honest answer to “what’s market?” is usually “here is what our last six comparable deals did” — and assembling that precedent research is your job. Backed by data, “market” moves points; without data it is just a wish wearing a suit.

14.4The classic battlegrounds

Every private deal spends most of its negotiating time on the same dozen points. Almost all of them are the warranty and limitation machinery of Chapters 11 and 12, plus the price mechanism from Chapter 9. The table below walks the classics — the typical opening asks, and where Sunrise landed.

Four deserve a closer look.

The basket. Recall from Chapter 11 that the basket is an aggregate threshold: the seller has no warranty liability until total claims cross it. The fight is rarely about whether to have one — it is about what happens when it is crossed. A tipping basket (US lawyers say “first-dollar”) means that once total claims exceed the threshold, the seller pays the whole amount, from the first euro. An excess-only basket — a true deductible — means the seller pays only the amount above the threshold. On Sunrise numbers the difference is dramatic: with a €420,000 threshold and €500,000 of successful claims, a tipping basket pays Atlas €500,000; a deductible pays €80,000. One drafting word, a six-figure swing — which is why the type of basket is negotiated as hard as its size. Here is the tipping language:

The caps. The overall cap settles quickly — sellers rarely resist capping everything at the price, and buyers rarely get more. The real fight is the business-warranty cap, because it sets the seller’s realistic worst case. Meridian pushed hard here for a reason every junior should understand: a fund cannot distribute proceeds to its investors while a large contingent warranty exposure hangs over it. Atlas could afford to move because genuinely catastrophic risks were covered elsewhere — fundamentals and tax sit under the full-price cap, and the known regulatory risk has its own indemnity. They landed at 25% — €10.5m — respectable mid-market territory for an uninsured deal.

Knowledge — theirs and yours. Knowledge fights come in two mirror-image forms. The first is the seller’s knowledge: which warranties get softened by “so far as the Seller is aware”, and what that phrase means. Buyers want a wide knowledge group and constructive knowledge (“ought to have known”); sellers want a short named list and actual knowledge only. Sunrise settled where many deals do: four named individuals, actual knowledge, but “having made reasonable enquiry” — so the seller cannot win by carefully asking nobody. A junior’s checking job: does the named list actually cover the business? (Sunrise’s includes the Head of Compliance — deliberately.) The second form is the buyer’s knowledge: can a buyer claim on a warranty it knew was false when it signed? This is the sandbagging debate, and Sunrise resolves it narrowly — only the actual knowledge of three named people, and only where they appreciated a claim was likely:

Time limits. These read as arbitrary numbers but each has a logic, which is why they settle faster than caps. Eighteen months for business warranties lets the buyer run one full audit cycle and still claim. Seven years for fundamentals and tax tracks how long tax authorities can raise assessments. The AML indemnity’s four years matches the expected life of the remediation programme. Argue the logic, not the number — “our auditors need to see one full year-end” beats “we want 24 months”.

14.5How trades actually happen

Points do not settle one at a time, in order, on their merits. They settle in packages. A package deal — “we can live with the tipping basket if the business cap comes down to 20%” — beats point-by-point attrition for a simple reason. Different points have different values to each side, so a bundle lets both sides give where they care less and take where they care more. Both walk away claiming a win — that is the whole idea.

That leads to the golden rule of concessions: concede what is cheap for your client but valuable to the other side. A seller desperate for a clean distribution values a short claims period far above, say, the consent mechanics in the pre-completion covenants. A buyer may not much mind a short claims period if the risks it actually fears are indemnified. Finding these asymmetries is what preparation — and listening — is for.

Three more habits of professional negotiators. First, keep a concessions log — a dated record of everything your side has given, and what it was given for. Without one, the same point gets conceded twice (it happens, usually at 1 a.m.), and at the endgame you cannot demonstrate “we have moved eleven times, you have moved four”. Second, silence is a position: not responding to a proposed change keeps it open without spending anything, and the other side’s silence on your change is never acceptance until the draft says so. Third, deadlines create movement: an exclusivity expiry, a board meeting, a fund’s year-end. Most issues lists shrink slowly for weeks and then collapse in the final ten days. Experienced negotiators save their real fallbacks for that window.

14.6Drafting is negotiating

The most underrated negotiating act is producing the document. Holding the pen — producing each new draft — means your language survives everywhere the parties have not focused, and the other side spends effort (and goodwill) on every departure. The first draft is the strongest move of all: psychologists call it anchoring — the first number or position put forward pulls the final outcome towards it. This is why, in an auction, the seller issues the first draft SPA and bidders must mark it up; in bilateral deals, the buyer’s lawyers usually draft. Whoever drafts first frames what is “standard” and what is a “change”.

Mark-up etiquette matters more than it sounds. Changes are shown in track changes against the last version sent — never silently. Substantial new provisions go in as clearly-flagged riders rather than buried edits. And the cover email is a negotiating document in its own right.

Read incoming mark-ups the same way: what the other side did not touch is information. A warranty returned unamended is silently conceded. A previously conceded point that quietly reappears in a later draft is either a mistake or a test — flag it politely either way, and log it. This is also why the concessions log doubles as a reading guide: review each draft against what was actually agreed.

14.7The choreography: calls and escalation

Set-piece negotiation happens on all-parties calls. The agenda is the issues list, circulated in advance with each side’s positions. Discipline is real: one voice per side — the lead partner speaks; others contribute only when brought in. The junior’s job is to take the minutes and keep the open-points table updated live, because the side that writes the record of what was agreed frames what was agreed. Circulate the note the same day, while memories are soft and the note becomes the memory.

The core skill is telling legal points from genuinely commercial points. Legal points include how claims must be notified, what “Disclosed” means, and conduct of third-party claims. Commercial points include the cap, the indemnity cap and locked box versus completion accounts — each of which is price wearing different clothes. Legal points are the lawyers’ to trade within instructions. Commercial points are escalated to the principals — on Sunrise, the €8m cap on the AML indemnity was agreed directly between Priya Nair and Daniel Okoye, after each side’s lawyers had framed the realistic exposure. The division of labour is constitutional: lawyers advise on risk; clients decide on price. A lawyer who trades away money uninstructed has exceeded the job; one who escalates every comma has failed at it.

14.8Conduct and ethics: hard on points, straight on facts

English solicitors negotiate under professional rules. The SRA Codes of Conduct prohibit misleading anyone — counterparties included — whether by your own statements or by standing silently behind your client’s. The line to hold: you may decline to answer (“we’re not going to discuss our client’s other conversations”), and you may advocate and posture within reason. But you may not lie about facts or your authority. No invented rival bidders, and no “my client has no more room” when you hold written instructions to concede. A lie about a fact that moved the deal risks both a misrepresentation claim and a regulatory report.

Two doctrines deserve one orienting sentence each. Without prejudice: communications made in a genuine attempt to settle a dispute cannot generally be put before a court — which matters when you negotiate warranty claims after completion, less so in deal negotiation itself. Legal professional privilege: advice between lawyer and client is protected from disclosure — one reason strategy lives in emails to your client, never in the cover email to the other side.

Finally, courtesy is strategy, not weakness. The London deal market is small and careers are long: the associate across the table will be across the table again next year, and may one day be your client. Deals that die often come back (Chapter 1), usually with the same lawyers. Be hard on points, soft on people — it is both the professional standard and the profitable one.

14.9The junior’s negotiation toolkit

You will rarely speak on the big calls in your first years — but you shape the negotiation if you own the machinery:

• Own the issues list. Keep it current, dated and honest. The person who owns the list quietly runs the deal.
• Build comparison tables of positions across drafts — clause by clause: first draft, their mark-up, our mark-up, current. Partners decide faster when the history is on one page.
• Circulate call minutes the same day, with agreed points marked agreed and open points restated precisely.
• Keep the concessions log — what was given, when, and in exchange for what. Nothing gets given twice on your watch.
• Do the precedent research — what the firm’s recent comparable deals gave on caps, baskets and time limits, so “market” claims can be tested with data.
• Run the document comparisons — on every incoming draft, and always against the last agreed version before signing.
• Know the current draft better than anyone else on the call. The quiet superpower: when the partner asks “where did we land on clause 9.6?”, the answer comes from you, instantly, with the page number.

Test yourself below — then on to Chapter 15, where the deal you have just negotiated finally completes.