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Avoid Negotiating by Proxy

In my career, I’ve been fortunate enough to have sold a handful of public and private companies that I was running at the time and acquire about a dozen others.  Looking back, the activities and process around mergers and acquisitions may have been the most fun I ever had as CEO.  Probably even more fun than the IPOs.

I think what makes M&A activity so much fun to me is that I love the chase, the negotiation and the final discovery of a unique solution that makes that last puzzle-piece fit into a picture that makes the deal work for all interested parties.  In my experience, coming to a successful conclusion to any such negotiation requires a thorough understanding of the goals of the parties involved – only by understanding the real goals of each party can a good solution be crafted if, of course, one exists.  Since there is so much information that is conveyed subtly and non-verbally during an M&A discussion, it is difficult, to say the least, to execute a successful negotiation if the negotiator isn’t involved in all stages of the interaction between the parties.  The relationship that is formed between the people at the table and the understanding they gain of each other is part of the fun and ultimately is a big factor in the success or failure of the negotiation.

While I enjoyed the thrill of the chase, there were always parts that were less interesting and greatly inefficient.  Perhaps the greatest of these was the fact that everyone even remotely involved in the deal felt the desire, need or obligation to convey what they believed to be the correct step-by-step negotiation process required to get to a close.  Now, I’m pretty open to advice (well, mostly), but when someone who’s not involved in the deal wants to tell me what to do and in what order, it strikes me as a bit outta whack.  It’s just not reasonable to try to set a process or path for an M&A discussion a priori or from afar – there are just too many variables and unknowns.

While everyone was happy to put their $0.02 in, the most common platform for getting this type of advice was board meetings.  It got so bad at times that 80%+ of the conversation about the deal was often dedicated to how the negotiation should be done rather than what should be negotiated.  Truly absurd.  As a director myself these days, I’m astonished how often other directors want to talk the CEO (I refer to the CEO as being the responsible party here – if applicable, replace CEO with whoever is responsible for the negotiation) through the steps of negotiation rather than giving him/her specific direction on the corporate or investor goals of any such merger or acquisition.

For sure, there are cases where the CEO is inexperienced and needs to have their hand held.  If this is the case, the board or other company advisors should get directly involved in the process and not negotiation through the CEO.  In that way, the negotiation will go better for the company and it will be a great opportunity for the CEO to learn how to go about it for the next time.  If the CEO is an experienced and capable person, however, the group should agree upon the key points to be negotiated, which areas are important to all concerned and which are less important so that the CEO has a few negotiating pawns.  Then, the CEO can best determine how those goals will be obtained during the negotiation because they are the closest to the discussion and have all the data.

There are negotiating fundamentals that can be taught, for sure, but once you get past the basics, negotiating is all about the interaction – the wealth of information that comes from the spoken and unspoken.  Some of these details can be communicated to the people who aren’t directly involved, but the success of the negotiating will often be determined by information that is subtly conveyed and difficult to communicate.  In the end, only the person or people at the table can conduct a reasonable negotiation.  It’s just silly to waste time doing it from afar and almost absurd to try to do it ahead of time.

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 May 30th, 2007  
 Will  
 Boards, General Business  
   
 4 Comments

4 Responses to Avoid Negotiating by Proxy

  1. While I agree with your main point, I completely understand why board members – particularly investors – are neurotic about this. There is a decent chance that a CEO, even if excellent in operating the company, is either less experienced or talented in selling one. Certainly it is not something he/she does every day.

    Then, add in the fact that good negotiation can easily double or triple the purchase price in a strategic purchase. Many venture investors get most of their return by optimizing sale prices.

    It adds up to extreme nervousness about how the negotiation is conducted.

    So, unless the CEO has in fact sold more than a couple of companies, an experienced director/investor may need to be the lead, as you suggest. There is just too much at stake at the company sale juncture for investors to be emotionally passive about it.

  2. While I agree with your main point, I completely understand why board members – particularly investors – are neurotic about this. There is a decent chance that a CEO, even if excellent in operating the company, is either less experienced or talented in selling one. Certainly it is not something he/she does every day.

    Then, add in the fact that good negotiation can easily double or triple the purchase price in a strategic purchase. Many venture investors get most of their return by optimizing sale prices.

    It adds up to extreme nervousness about how the negotiation is conducted.

    So, unless the CEO has in fact sold more than a couple of companies, an experienced director/investor may need to be the lead, as you suggest. There is just too much at stake at the company sale juncture for investors to be emotionally passive about it.

  3. Dave,

    Yup, that makes sense. I’d just like to see the investors be more black and white about it. If they have an inexperienced CEO (along the lines that you stated), then step in to help – don’t try to be the puppet-master. Everyone (including the CEO) will be better off because of it.

  4. Dave,

    Yup, that makes sense. I’d just like to see the investors be more black and white about it. If they have an inexperienced CEO (along the lines that you stated), then step in to help – don’t try to be the puppet-master. Everyone (including the CEO) will be better off because of it.