Negotiation Exercise

Sellers

Common Facts

This negotiation is between Flyover Airlines $($Purchaser$)$ and Puddle Aviation $($Seller$).$ After

weeks of negotiation, the Parties have agreed on all details except those outlined below. Each

side has indicated they are perfectly happy to walk away and continue operations as is$,$ but they

recognize they are negotiating for a reason: if a deal can be found to satisfy all needs it will be

the best outcome.

The Purchaser is a small$-$to$-$moderate size airline that services smaller, non$-$metropolitan cities in

Canada. They have been operating since $2002$ and are looking to grow in new spaces now that

travel restrictions have passed, and some competitors are no longer operating since COVID

interrupted travel.

The Sellers are brothers $($Jack and John$)$ that have been flying customers into remote

fishing$/$hunting areas for over $30$ years. They have six planes and approximately $500$ hectares of

land that host $4$ private runways. One of these runways is less than $50$ kilometers from Ottawa;

another is in the heart of Muskoka which is known as the playground for the rich. These have

tremendous standalone value.

The Purchaser$$s approached the Seller$$s in January $2024$ about acquiring Puddle Aviation and

passive negotiation has been ongoing since this time. Each team has hired accountants and

lawyers to review the business and have empowered their agents $($you$)$ to close the deal. The

person in your group with a first name closest to A shall be the accountant; the other is the

lawyer.

Each side is aware of a comparable deal when the North West Company bought North Star Air

in $2017$ for $$31$million. More recently, WestJet bought Sunwing for $$5$ billion, but that deal is

not comparable as it was for $18$ large passenger jets and over $8,500$ employees. Another deal that

is rumoured involves Air Canada buying out a company in British Columbia for nearly

$$60,000,000$ and absorbing eight planes and similar property and company value.

In the previous discussions Puddle Aviation has disclosed, and Flyover Airlines has agreed to the

following values of the company:

$$ outstanding business contracts $($accounts receivable$)$: $$325,000$

$$ books, records and files: $$40,000$

$$ goodwill: $$10,000$

$$ all liabilities: $$4,700,000$

Neither side has made an offer toward a sale price, although each have a target in mind.

Your Position $-$ Seller $($Private to you$)$

At $55$ and $57,$ both brothers are getting older and feeling their age after a lifetime of working in

and on planes. They recognize they could go longer if they must, but this opportunity is

something they have been hoping for as the sale would finance their retirement. Jack, the

younger brother, is somewhat hopeful he can buy a new plane similar to his rare pondfrog and

resume servicing his best clients $($and now friends$)$ to one particular location in Northern

Ontario, although those planes are rare to find these days.

The brothers are smart businessmen and know the value of the assets exceed $$50$ million $($$$3$

million in six planes, $$44$ million in land$/$fixtures$,$ and $$3$ million in other materials such as

trucks, parts, and such$).$ Five of the planes are in great condition. The sixth is older and the

smallest plane, the pondfrog which doesn$$t really fit with the rest of the fleet as it only holds four

people and not much weight. There is only one significant debt to speak of in the form a bank

loan in the amount of $$4\mathrm{.}5$ million and other negligible amounts. This should be disposed of in

the negotiation as the costs to break the loan would be nearly $$700,000.$ Obviously, they would

like full value in cash for the business in one lump sum payment, but they are willing to take

installments if other needs are met. With ambitious projects ahead, they really should have full

payment within seven years.

They have a loyal and devoted staff of $15$ professionals $($apart from the brothers$)$ and insist they

retain their jobs with a healthy $20\%$ raise or otherwise taken care of by the new owners.

The Sellers have heard that when Flyover Airlines bought a competitor in $2018$ they allowed the

previous owners to have complimentary first class seats on any flight they operate at any time for

four people. They would like the same as they are avid travelers.

As Puddle was the name of their fathers first plane, the Sellers would like to ensure the company

flies as Puddle Aviation for at least the next $10$ years or until dad passes away whenever that may

be$.$

Purchasers with deep pockets like this don$$t come along very often and selling everything at

once is preferred over selling each property and plane individually. They could hold out for a

few more years before going this route, but this is clearly a great opportunity.

You are tasked with reaching a deal with the Purchaser today. The brothers have offered you

$($each the lawyer and accountant$)$ with a bonus to be determined by the quality of deal you strike.

The accountant shall be judged on the terms of the cash settlement and the lawyer will receive

money