Bilateral Negotiation
A bilateral negotiation is a sale of a company to a single buyer without a competitive process — the seller and one counterparty agree the price and the terms directly, usually because the buyer approached first, the fit is obvious, or the seller values confidentiality and speed over the price an auction might add. It is how most small and many strategic fintech deals happen, and its risk is the leverage the seller never had.
- Also known as
- Bilateral process, Negotiated sale, One-to-one negotiation
- Used at
- unsolicited approaches from a strategic buyer, founder-to-founder deals, sales to an existing partner or investor, and deals too small or too sensitive for an auction
- Binding
- the same documents as any sale — heads of terms, exclusivity, a sale agreement; the difference is that no other bidder sets the price
- Typical trade-off
- a bilateral deal signs in two to four months rather than five to seven, leaks less, and costs less in fees; an auction typically adds 10–20% to the price through competition and gives the seller terms set by comparison
- Typical seller tactic
- run a "dual track" — negotiate with the approaching buyer while the adviser quietly readies an auction, so the buyer knows the alternative exists
- Parties
- the seller and the one buyer, their advisers, and — invisibly — the other buyers the seller could have called
How a bilateral negotiation works in practice
A strategic buyer that already knows the company — a partner, a competitor, a customer — makes an approach: it wants to buy, it will pay a fair price, and it does not want a process. The seller's choice is whether to engage on those terms. If it does, the negotiation runs on the buyer's timetable: an indicative price, limited diligence, heads of terms, exclusivity, confirmatory diligence, a sale agreement. The seller's leverage is its willingness to stop, and the buyer knows exactly how much that is worth.
Sellers manage the asymmetry three ways. They hire an adviser anyway, so that the buyer negotiates with someone who knows what the auction alternative would bring. They prepare the materials an auction would use — a vendor due diligence report, a data room, a financial model — so the buyer's diligence finds no surprises to reprice on. And they keep a credible alternative visible: a second buyer in the wings, an adviser's buyer list, or a genuine willingness to keep the business. A buyer who believes the seller has no alternative offers less and reprices in diligence; a buyer who believes it might lose the deal behaves like a bidder.
For fintech founders the bilateral approach is common because the natural buyer is often the one company that already integrates with them — and the natural price is what that company can justify, which the seller only learns by asking someone else.
Example
A payments platform's largest partner, a bank, approaches its founders with an offer of €42m — 7× EBITDA, "a fair price, no process". The founders engage an adviser, who tells them the auction range for the business is €48–56m, and prepares a vendor due diligence report and a data room in six weeks while the bank negotiates. At heads of terms the founders ask for €52m; the bank offers €46m and argues that its partnership makes it the only buyer that can integrate the platform. The adviser mentions two funds that have asked about the sector. The bank signs heads at €48m with eight weeks' exclusivity and no repricing, and completes four months after the first approach — six months faster than an auction, and €4–8m below what one might have produced, which the founders accepted for certainty and for keeping their partner as their buyer.
Common mistakes
- Engaging with the approaching buyer alone, on its timetable, with no adviser and no alternative. - Granting exclusivity at the first meeting, before a price is written down. - Letting the buyer do open-ended diligence, so every week produces a reason to reprice. - Believing the buyer's claim that it is the only possible buyer; it usually believes that too, and is usually wrong. - Comparing the bilateral price with nothing, because nobody asked what an auction would bring.