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Negotiating a Business in South Africa

Negotiating a business is a complicated transaction that requires meticulous planning, professional support, and industry knowledge. This guide will help you kickstart your negotiation journey by offering step-by-step advice.

Why Is the Negotiation Stage Important?

Negotiating is a way of life for many South Africans. While negotiating is a cross-cultural strategy that plays a significant role in everyone’s daily life, there are nuances and social codes specific to South Africa – a country with diverse cultural DNA.

Negotiating practices will be defined by each unique culture. In the same breath, each culture will define their own negotiating strategies. Whether you are a seller or a buyer, being conscious of and accommodating toward cultural differences during the negotiation process is crucial to ensure collaboration. You may work with someone who’s sole goal is to sign an agreement and move forward. Or you may work with someone who is keen to establish a long-lasting relationship.

Why is negotiation important

Negotiation strategies will always vary depending on the seller or buyer’s characteristics. Some may want to maintain a competitive advantage and be unwilling to compromise unless the negotiation is under threat of deteriorating. Others will see the negotiation journey as a team effort that requires problem-solving, relationship-building, and constant communication.

Nonetheless, a seller will always want the highest price for their business, and a buyer will always want the cheapest option. The negotiation stage is your final hurdle. Your preparation and understanding of goals and contracts will determine the outcome, so have strategies in place to execute this.

However, it’s important to remember that each negotiation will be different, as both sellers and buyers will have different strategies and deal terms. If you’d like to refresh your memory on different stages of selling a business, look at our guide on selling a business or our guide on valuing a business. Moving to the final stages of the selling journey, this guide will offer helpful strategies and examples for both sellers and buyers.

Find out more: Want to know how much your business is worth? Get a free estimate valuation.

The Seller: Negotiating the Sale of Your Business

The negotiation will not start out of nowhere. You’ve likely reached an asking price based on pragmatic valuations. These valuations should derive from the following elements of your business (depending on what business you have):

  • The value of your material assets (stock, buildings, equipment, IP, research development)
  • A fair market value analysis
  • The value of your shares
  • Other elements that have potential for growth and transferability

Likewise, you should already be in contact with potential buyers, and your advisory team should be involved in this process. If you are not confident with the ebb and flow of selling a business, it is recommended that you hire a professional business broker or legal advisor that specialises in acquisitions, as they will provide guidance and negotiation strategies.

Negotiating as a Seller

Preparation is the key to success

Doing your research and formulating a strategy for this final stretch is an obvious step, but it requires clear goals and ways to achieve them. From a seller’s perspective, you probably have ample knowledge around your business’s condition, environment, and future development. But this is the stage that you’ll need to conduct background research on your potential buyer.

Understand what is important to them, including their needs and wants from this process. What are their goals? What would their possible questions and concerns be? Do they have secure financing options to develop your business? Are they familiar with the terms and conditions? Do they have any requests or preferences? Anticipating possible concerns will put you at an advantage in meetings. Knowing what you and the buyer want from this process will help the negotiation journey run smoothly.

Your preparation will need to be consistent, before, during and after the process. Before your first meeting with potential buyers, develop a clear agenda. Some elements can include:

  • Anticipating answers to questions a buyer or their advisory team may ask
  • Questions you’ll ask the buyer or their team (including follow-up questions)
  • Where your meeting will take place (it could be a quiet café or a corporate setting, depending on the ‘personality’ of your negotiation)
  • How you’ll discuss contracts and terms
  • Your intentions, and how you’ll manage expectations. You should also be clear on what you’ll divulge at each stage of the negotiation
  • A timeline dedicated to follow-up meetings, due diligence, and a possible closing date

Trust, honesty, and clear communication

The negotiation process is a very professional and structured arrangement. Ensuring you get the right price for your business is an integral part of this journey, but maintaining a collaborative relationship with your buyer is just as crucial. Mutual trust and honest communication are taken very seriously amongst South Africans. Exhibiting a willingness to nurture a professional relationship that is defined by clear goals and open communication will result in a rewarding outcome for both parties. If a buyer identifies dishonesty or trickery, your relationship is unlikely to last, and any positive dynamics can be ruined. It could even result in legal implications like a court case.

Listen, remain focused and summarise your meetings so you have a paper trail in case you need to clarify any misunderstandings along the way - especially if you and your buyer have a language barrier. Be conscious of personal expressions and communications – everyone has different ways of taking risks, understanding time, and building agreements. You will not walk away with everything you wanted – that is what a negotiation is all about.

However, it is important to maintain an advantage during negotiations, especially if your asking price is realistic. The buyer and their advisory team will take every opportunity to lower the purchase price, so stand your ground without being aggressive.

Cooperate, but know your bottom line

One of the most daunting parts of the negotiation process is the due diligence phase. This is a detailed investigation of your business prior to any contracts being signed, taken up by the buyer and their team. It will involve an accountant, or a legal advisor conducting an intricate analysis of your business to determine risks and opportunities. If you have prepared for due diligence, it should progress smoothly. If you haven’t, you could run into multiple problems. You can find a due diligence checklist diligence further on in the guide.

Remember that negotiations take time, and the value of your business will likely fluctuate. During due diligence, it is crucial to keep your business performing at a high standard, possibly higher than it has ever performed before. In the same breath, if you have conducted adequate research on your business, and your valuation is a true reflection of its worth, but the buyer is persistent about decreasing its price, you need to have a bottom line and know when to walk away.

You need to feel comfortable with the deal, and if you are uncertain, take it as a sign to walk away.

Make sure the deal structure works for you

The amount you receive will be important to you, but it should not be the only variable that you consider. The buyer that you choose should share a similar vision of your business and should demonstrate and interest in its future development.

Deal structures aren’t always clear-cut, so it will take some creative thinking and problem solving to achieve outcomes that suit both you and the buyer. A sale agreement that both parties can agree on takes time. You’ll need to run through financing options, payment terms, any agreements and warranties that you’ve discussed, and transition concerns. Once you’ve found a deal structure that works for you, you’ll move on to inspecting and signing documents. Your advisory team should scrutinise these closely.

Find out more: Interested in finding out more about mergers and acquisitions? Read our M&A guide.

The Buyer: Negotiating the Business You’re Interested in

As with most transactions that require two sides, the buyer’s perspective in the negotiating process is very different to the sellers. Depending on what type of buyer you are, this may be a one-time endeavour, or it may be something you’ve done before. Your negotiation will be shaped according to the type of business you are interested in and what part of the business you want to acquire.

Regardless of what buyer you are, acquiring a business is always a major pursuit because you assume more risk. To anticipate and mitigate these risks, an advisory team that specialises in acquisitions is highly recommended.

Even if you have an agent by your side, it’s important to have your own, comprehensive understanding of the process and the business you’re interested in. This will not only demonstrate your seriousness of the deal but show the seller that you have done your homework, and that you mean business.

Negotiating as a Buyer

Prepare and research your target business

To ensure an equitable experience in your purchasing journey, make sure you familiarise yourself with how negotiations unfold, and strategies you’ll need to implement to gain leverage. Part of this familiarisation is preparation. You’ll need to research the business’s industry, understand the risks and benefits of acquiring a business, and accurately valuing the business.

Based on preliminary investigations and valuations, what will you offer for the business, and what research do you have to substantiate your value proposition? Economic conditions in South Africa can be volatile, so assess the marketplace and use this knowledge of economic conditions to your advantage.

Buying a business is not cheap, so you’ll need to be very conscious of your financial abilities, including possible loans you may need to sustain the business once the seller leaves. In terms of your offer, make sure you have a few cards on the table. You should have your lowest offer and your best offer, both of which should be fair. You do not want to undermine or offend the seller, so always allow room for bargaining. Some elements that you should consider when developing your offer are:

  • Has the seller offered a financing strategy, like seller financing?
  • Will the final purchase price be impacted by the current state of the business’s performance?
  • Is the inventory updated and suitable to function post-sale?
  • Is the seller going to stay with the business post-sale? If so, will it be during the hand-over period, an earn-out period, or will they retain a minority shareholding?

As you can see, there are multiple variables to consider, and each deal structure will be unique according to the objectives of the buyer and seller.

Maintain a relationship built on integrity

Both buyers and sellers are responsible for maintaining a partnership during the sale. Depending on the objectives of both sides, this partnership may be based on trust, honesty, a long-term relationship, or a straightforward transactional relationship that will end on completion.

Information sharing is a sign of integrity amongst South Africans; however, you may want to avoid disclosing too much information to the seller. Likewise, if you hide information from someone to try gain an advantage, it could turn a possible partnership into a lengthy conflict.

Part of your preparation is to understand the seller’s perspective. Negotiations can be arduous, so be honest with your intentions and manage your expectations. The seller has likely put a lot of energy and sacrifice into building their business, so you’ll want to treat them with respect and build a partnership based on trust and professionalism.

With that being said, a buyer also puts a lot of energy and sacrifice into the deal, and they often assume more risk, so this respect should be mutual. Compromise is important, but it’s crucial to find a balance between being accommodating and standing firm against your decisions. If you compromise too much, the seller can exploit this.

Take due diligence seriously

The most significant part of a buyer’s purchasing journey will be due diligence. This will be an investigation that the buyer’s team will conduct to evaluate the risks and opportunities of the target business. It will assess the legal and financial operations of the business and provide detailed insights that you can apply to your purchase price.

Areas that your team should investigate are:

  • Financial variables (usually up to five years)
  • An analysis of customer growth and market share
  • Legal and regulatory risks
  • An investigation into products and services
  • An analysis of the seller’s relationship with suppliers and/or vendors
  • Your business’s operations
  • Debts, liabilities, and other obligations
  • Reasons for selling your business

What does your deal structure look like?

The circumstances surrounding your acquisition, including how much the business is worth, will determine the deal structure. For example:

  • A share sale: the seller will transfer their ownership to another party. This will include all assets, liabilities, and operations of the business
  • Asset sale: a seller may want to auction off assets (both tangible and intangible) of their company for multiple reasons
  • A merger: a transaction that combines two companies to enter new markets and increase shares in a market
  • A MBO (Management Buyout): the managing team buy a large share of the business to take control of its ownership
  • Earnout Agreement: the buyer will need to make a payment if the target business meets financial objectives after the sale. This is an appropriate deal structure if you and the seller cannot agree on the value of the business

As previously mentioned, your deal structure will require time develop, even before the negotiations begin. Ensure you understand the seller’s goals, and that your advisory team is involved in helping you make the decision.

Documents You’ll Need

Documents and contracts to consider

Any business transaction will involve multiple legal and financial documentation. These documents are a general checklist. The circumstances, objectives and intentions of your acquisition will define the documentation you’ll need.

A contract with your advisor

If you hire a professional advisor, you’ll need to sign a contract with them that outlines their tasks, services, and a fee structure.

NDA (Non-disclosure agreement)

Business negotiations involve sensitive information, and it’s crucial that this be kept secure. A non-disclosure agreement, or a confidentiality agreement will protect your information, and all prospective buyers will have to sign it before a sales memorandum is released. It is legally-binding, and your advisors should draw up the contract.

Sales memorandum

This is a document that outlines the essential details of the target business, and it will be issued by the seller’s advisors. This will record the business sector, a sale price, financial details, insights of the location, and the structure of the sale, amongst other elements.

Heads of agreement

This document will set out the terms of the transaction during your negotiation. While this document is a serious representation of your deal, parties are not compelled to conclude the deal on these terms. However, arrangements concerned with costs and confidentiality will be legally binding.

This document outlines the main terms of the deal, including a timeline, and obligations of both parties. A heads of agreement is usually sent out after preliminary terms have been agreed, and before due diligence is started.

Completing the sale

Your legal team will draw up this contract, as it will involve a lot of intricate variables. Some may include:

  • Sale agreement
  • Indemnity agreements (like a tax deed)
  • Minute of the board
  • Transfer documents relating to shares, leases, licences, and client contracts
  • Agreements concerned with the business owner and employees remaining with the business
  • Finance details (like loans, or share agreements)
  • Warranties
  • Seller protection
  • Covenants

Find out more: Need more advice on valuing your business? Read our business valuation guide for helpful tips and free tools.

Negotiation Strategies to Keep in Mind

You can never be too prepared

Negotiating is a skill that requires time and practice to perfect. Whether you’re bargaining for a lower price at a grocery store or bargaining for a lower price on a multi-million-rand business, you should take opportunities to practice. Part of this practice includes research concerning your financial limitations, objectives, the functionality of your business, ways to improve your operations and more. Preparation is a crucial part of negotiating.

Analyse your market

The value of a business is not static. It fluctuates according to industry trends and economic conditions. Economies are always volatile, so you should keep a close eye on conditions that will affect the value of your business. Likewise, a seller should ensure their business operates at fully potential during the negotiation, and a buyer should scrutinise market conditions in case the seller is too opportunistic about the future trajectory of their business.

Tactics and Strategies

Clarify misunderstandings, and summarise meetings

Any business transaction, no matter what phase of it you are in, will have a lot of information to digest. If you don’t take notes, summarise meetings and clarify agreements or misunderstandings, things can slip through the cracks.

Both parties need to be on the same page, so make sure your conversations and agreements are well documented, whether it is on paper, in an email or in a virtual database.

Be creative

The best possible outcome for both parties is not easy. It requires a lot of creative problem solving. For example, a business owner is ready to sell their business, and they are offered two proposals. Company X is offering R10 million, and Company Z is offering R20 million. Obviously, you would want the highest offer.

However, take a moment to understand what your counterpart’s interests are. Company X is interested in your location and building as the area is becoming increasingly developed. Company Z is interested in your intellectual property and patents. Considering accepting both offers can increase your offer to R30 million.

Walk away when the negotiation becomes stale

As a seller, you are not just selling your company, but its future too. Don’t invest all your time and resources into one acquirer. Make sure you have options to fall back on. At the end of the day, selling a business isn’t always smooth sailing, and they can become sour very quickly. You don’t want to regret underselling your business or selling it to someone who won’t grow it. Always have alternative buyers that will be willing to close the deal on favourable terms.

As a buyer, make sure that the seller is asking for a pragmatic price. If your research is accurate and it suggest that they are too optimistic in their valuation, or they are ‘sugar-coating’ their assets, and are not willing to compromise, then it may be time to walk away.

These are only a few negotiation strategies you can implement, but there are multiple strategies you can use! You and your team will need to decide which strategies work best for you and your objectives.

Some Sector-specific Examples

Here are two sector-specific examples that illustrate the negotiation process very simply:

Manufacturing Business

Manufacturing Negotiation examples
  • Start by getting a realistic valuation of the manufacturing company.
  • Release a sales memorandum.
  • Your intermediary will then screen potential buyers based on specific requirements, including if the buyer can afford the transaction.
  • Preliminary communication will begin between the buyer and seller’s team.
  • Both parties will put forward documentation, including NDAs.
  • They buyer will investigate the location of the plant, and will likely visit it multiple times, including during due diligence.
  • A letter of intent (LOI) will be submitted.
  • Due diligence will be conducted by the buyer’s advisors.
  • Heads of term and sale agreement will be discussed.
  • The deal will be closed

Retail Business

Retail example

The focus of a retail business for sale will be the location and lease, including assets and inventory. You cannot have a retail business without a space (unless it is an ecommerce business).

  • Your advisors should be familiar with negotiating retail businesses
  • Ensure you have a counteroffer to the landlord’s base rent
  • Visit the location, and investigate the size of the space, and familiarise yourself with average prices per square metre – these can sometimes be inflated.
  • Attempt to negotiate a minimum lease length that has benefits
  • Breaching a lease happens for multiple reasons, so discuss a period that you can rectify this
  • Negotiate on penalty fees
  • Consider clauses that will protect you, like a sublease clause or a clause preventing your landlord from allowing competitors to rent in the same area as you
  • If it is a corporate lease, try negotiate perks like free Wi-Fi, or free parking if it is a busy area


The negotiating stage is complex. There are many considerations, but these can be compartmentalised by hiring a professional team that specialises in industry-specific acquisitions. When it comes to building a relationship with the seller or buyer, South Africans take face-to-face communication seriously to dissolve any disputes. Most business transactions require some form of self-interest, but in South Africa, relationships based on reciprocity and symbiotic dialogue are crucial. It is important to create an environment that serves both the seller’s and buyer’s best interests.

Take advice from experts who can uncover risks and opportunities and help you define your goals and limits. Ensure you have a team that understands all required documentation.

Whether you are a seller or a buyer, the negotiation stage is not a clear-cut journey, so patience and strategy are crucial. For further support and advice, you can contact us.

Remember, step-by-step and respect is the key to success!

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