I'm your host Kison Patel, CEO, and Founder of M&A Science. Joining me today is Mladen Kresic, CEO at K&R Negotiation LLC.
Malden is a professional negotiator specializing in business transactions and has assisted C-level executives and companies with practical sales and negotiation strategies around the world.
He's personally closed hundreds of transactions resulting in relationships worth billions of dollars.
Mladen is founder of K&R Negotiation, a 20 year consultancy with professionals operating on every continent, before K&R he was an attorney at IBM and then general counsel and board member of Bristol Technology.
Today we're going to talk about how to negotiate like a pro.
What led up for you to get this as your focus, as your career focus?
It comes somewhat naturally having a Croatian and multi-ethnic background, let me put it this way. But one of the first things I was involved with professionally when I graduated law school.
I hate to admit it, but I am a lawyer by trade. I had a client who was selling a set of product centers.
So they were selling a whole bunch of retail outlets to another industry member at the time, about 70 or 80 of these outlets. It was an asset sale.
I had the task as a junior lawyer working on the deal, I had the task of procuring the lease assignments from all 73 or 78, I can't remember the exact number of landlords.
To get an assignment from this one very high name brand company to the buyer which was not as well known.
So of course the landlords, none of them really wanted to allow the assignment of the leases. Why would we go from an A-rated company to a questionable B-rated company?
So we are 48 hours before the closing is supposed to take place. And I have one out of 78 assignments.
So these are the days when you didn't have the communications we have today. You had fax machines at the best. So I'm panicking. I'm completely panicked.
So I pick up the phone and I call every one of these landlords and leave them all messages because not a single one of them picked up the phone.
And I said that I'm on the phone and I sent them a follow-up fax. We are perfectly okay remaining primarily liable on the leases which we were going to be anyway. But we want you to know that it is rather urgent that you give us these assignments.
And it's okay if you don't just understand that there will be a boarded up storefront in your premium luxury building on park avenue and other places. As of Monday morning, this was Friday, so it was a Monday morning, 8:00 AM and that's all I did.
And slowly over the weekend, I never went to sleep. Fax has started coming in one after the other by 7o'clock in the morning. Monday morning, I had every single one of them. So I learned that sometimes instinct works well in negotiations.
And it was suggested to me by some of my superiors at the time, which were these much older people of 40 years old or so, which today of course, seems like a junior person.
They suggested that I do some other things involving negotiations from then on. So I got roped into a lot of negotiation scenarios that were challenging and so on.
Why is it important to learn how to negotiate?
I think we already mentioned it to some extent, it's something that we do every day. And a lot of people are intimidated by it because they think of hardcore negotiations adversarial negotiations but actually negotiations are not an adversarial process.
If you think about it from the standpoint of what is in negotiation, right? Negotiation is really an interaction between or among people because sometimes there's multiple parties to reach an outcome.
And if you think of it that way, especially in business, it's something we all ought to do and ought to do willingly.
Does that mean that there are no adversarial moments? Of course not. And by the way, not everybody's comfortable with the adversarial aspects of negotiations. If that's the case, learn about negotiations, learn about what needs to happen.
And then get somebody else to help you in sifting through the adversarial moments and breaking down things to their logical components, especially things that are more complicated than they should be.
It begins with simple things like understanding that negotiations really are something that occurs throughout your interaction with people.
It's not something that just occurs when you're talking about, oh, I want to buy this or sell this for this price.
It occurs in shaping things. It's the give and take, for example, when somebody is building a house that takes place about the specifications, what materials we should use and so on.
Or if you're in an M&A deal, it's going to be simple things, it's going to be an asset sale, it's going to be an equity sale, right?
And just the discussion of the pros and cons of both and the risks and rewards associated with different alternatives. Those things are all negotiations that we could learn to do better but first we got to recognize we're actually negotiating.
- Are you setting the client's expectations?
- Is the customer going to come back to you and we'll expect you to deliver what you just said? Are you going to be able to deliver it?
- And that they're going to say, okay, this count something offered because you can't deliver everything you just told me seven days ago,
It's a pervasive process. You can't really separate it from other activities that you do that involve interaction with people.
What's your value based approach to negotiations?
You've got to separate sometimes the kinds of negotiations that you do. There are a number of schools of thought regarding problem-solving and adversarial negotiations.
And in reality, there are elements of both that permeate almost every negotiation that we do. The value-based approach is all about understanding the other side's interests and uncovering those interests.
And negotiating to those interests so you can move them closer to your way of thinking. In fact, that's the way we define leverage. It's quite closely related to leverage.
A lot of people struggle with leverage. It’s a term that is a way we use it in negotiations all the time.
Leverage is a term that doesn't exist in any other language, other than English. It doesn't exist. It exists in a different context, but not in the context of the personal relations we're talking about when we talk about negotiations.
So it has to be translated for people. So years ago, I gave it a lot of thought, what do we actually mean by leverage because it comes from physics. In physics, it does exist in all other languages.
In interpersonal relations, in German, French, my native tongue Croatian, Japanese, Chinese, it really doesn't exist. It has to be explained. So if you think about it in physics, leverage is the ability to move objects of heavier mass with less force.
That's what levers give you. More levers in a pulley system, the more easily move objects of heavier mass with less force. Well, leverage in interpersonal relations is the ability to move people.
And value-based leverage, or what I call positive leverage, people move voluntarily. They move voluntarily because you're doing something for them.
It's in their interest to move versus negative leverage, which by the way is very valid because so if negative leverage, that's the risk-based.
So negative leverage, people don't move so voluntarily. They may move because they have to. Utilities, you have got to pay the bill, which is why utilities are regulated by the way, because they’re natural monopolies, right?
They're regulated because they can charge anything they want because people have to have electricity, they have to have water, they have to have sewage, let's take away sewage. To me, the positive side of leverage is all value-based.
In fact, when we use something, we use a tool called the leverage slope, which is a very simple mathematical model that has a value, especially unique value on the X-axis and price and terms delta, and price and terms on the Y-axis.
And if you draw that diagonal which is the leverage slope, the higher the unique value, which we like into business impact on the other side, it'd be to be negotiations.
The higher the theoretical price is that you can charge to some extent this price sells but that represents obviously the more value you deliver more, the higher prices and becomes less elastic.
But anyway, I'm going on with economic theory now. And so I'll stop on that question because that is the value-based approach to negotiations.
We need to know where we are on the leverage slope so we can articulate positive leverage because it's better when you're trying to formulate business relationships, it's better when you're trying to sell.
But you have to remember negative leverage because people will act with more urgency in relation to risk. So negative leverage is very important.
So you got both positive and negative leverage and I'm assuming you want to map this stuff out? I want to put all these pieces on the table to start thinking of what my strategy is going to be. What am I going to prioritize or try to set up the first scenario? What does that look like on the back end strategy side?
It's a broad question. Let me break it down. First of all, you have to understand the portfolio of leverage that exists on both sides, right? Or on all sides.
Everybody has some leverage, things that give them leverage. The clients or the customers have leverage, or the buyer has leverage, the seller has leverage.
The seller presumably has something to buy and wants. The buyer has leverage because they have money, they have maybe alternatives. So you'll have to understand those things. And then you have to break down the goals in the interests of these two sides.
And I like to do that using something we call the risk-reward matrix. And that was, I like to understand what the other side worried about in terms of risk, if they act, if they don't act with me?
What's the risk of not acting, right? And what are the rewards of not acting versus acting? Because that'll give me a good feel for what leverage lies there and what I need to or what I need to do in order to get them to act?
Presumably, I want them to act. And that will start in my mind populating a little set of priorities.
So for example, if the reason is that, and again, I'll put it in an M&A context. If I am the seller and I'm considering selling my business, I want to know not only what the alternatives I have because they're going to give me some leverage.
But I also want to know and understand what the action, non-action, risk-rewards look like for the buyer action being acting with me buying my company. And non-action, could be build your own, don't do anything, use your money for other things, right?
The opportunity costs or potentially does a deal with somebody else. If there's somebody else will. So I want to identify the risks of action and non-action in relation to alternatives, build your own, buy me.
And I want to understand the rewards and for the person who's the purchaser there will always be alternative uses of money. So I have to understand something about their business.
How do you do that though? How do you know all those variables? Do you have to ask questions and do discovery? What do you do?
Absolutely. You have to. One of the good questions actually is a lot of people in the negotiations who are hard-charging, who are type-A personalities. I actually am a type-A personality.
But one thing I've learned over the years is that patience and listening are two skills I really needed to develop in order to develop the portfolio of information to do the kind of analysis we were just talking about, to understand the risks and rewards of different alternatives.
And it's remarkable to me. And to some extent I'm external to a lot of negotiations. I'm hired in order to help somebody else negotiate a deal. So it's easier because I'm dealing with their children, not my children. So this is not to be critical of anybody.
But I think when people are very immersed in their own deals they lose that ability to sit back just sheer pressure, sheer business pressure. Sometimes they don't listen as well as they should.
And you always have the opportunity to listen. You always have the opportunity to ask good questions. In fact, when you think about it, even when I interview people for jobs or whatever, you're a professional interviewer.
Very often in interviews that I do with people, especially young people. I made more of a judgment on the questions they ask and then on the answers they give because I want to know if they've done their research.
I want to know about them. I want to do my own research as well. And by listening to the questions they ask, I can learn a lot about whether or not they're going to be listening and putting things together in a logically structured manner, right?
Can you give me some example questions?
It depends on the context, but I'll tell you first the question I absolutely hate. And I hear people in sales in particular ask this question or advocate asking a question, which is tell me what keeps you awake at night?
Which is to me, one of the stupid, I don't know if you've heard it, but to me, it's one of the stupidest questions because first of all, it doesn't show that you've done any research.
People get annoyed at that kind of question. Wait, what do you mean, what keeps me awake at night?
The question that I like to ask is, first of all, I want to understand the other sides of the business and there's no substitute for genuine curiosity. I'm always curious about businesses
So I want to know, and I don't care whether this is M&A context, joint development, the complex transaction, and well-being M&A, and outsourcing or whatever.
I want to understand their business. So I'm going to do a little bit of research on their business. And then I'm going to look at what their drivers are and what kind of hurdles they have in their industry.
And so I'm going to ask some questions around what are the biggest hurdles within those that I've seen on their website and all the research that we do.
And there's the research, it's just so easy on most of this stuff and everything is available. So I'm going to identify the context for them because obviously, a lot of information is available and then I ask questions within that context.
And then I also want to know what drives them. What are they motivated by individually and sometimes there's a lot of that information available, especially with high-ranking executives.
Those people usually have taken over other people's jobs in some recent future, or recent past. Why? What was the problem? Why would they hire? And I ask the question again in context.
So it's not an obnoxious question. I'll say to them, look, we understand the company is doing this and this. And you came on board six months ago. What was the driver for the company and for you? It's a perfectly legitimate question.
And we use I want to know two things, I want to know what's motivating them, which is the why question. I also want to know which is the flip side of the why, which is what are their objectives, current state, future state?
Because if we're going to do a deal, usually it's got to be related to enabling them to get to that future state. I don't care whether it's M&A, again, it doesn't matter what kind of deal.
If I can't in some way relate my deal to the future state, probably it's not going to happen. And it's going to be somewhere along with those priorities.
What about empathy? Where does that fit in all this?
Huge, the definition of leadership is getting lost, right? And if you can show leadership characteristics when you're dealing with people they're likely to follow. You can start moving them closer to your way of thinking.
And to me, one of the essential characteristics of leadership, there's two actually. I would say this way before the last 10 years, when you know, politics have become polarized and all and there's a lot of tension out there in leadership.
Again, my answer would have been the same because I'm troubled by the way corporate denizens behave. But humility and compassion to me are two essential elements of leadership because capability, obviously, credibility, and the ability to deliver are essential as well.
And but if you have a lot of capability and you have a lot of credibility and you have a lot of confidence that comes with those things, the only way you prevent that from turning into arrogance is humility and compassion.
And empathy is within those two areas, especially if you're doing business and trying to get people closer to you. Thank you. This brings back both positive leverages.
By the way, that again doesn't mean that negative leverage doesn't apply because in certain cases you've got to remind people they're about to make a stupid decision if they don't listen to you.
What are the skills you should develop in order to master negotiations?
It's interesting because it goes back to patience and listening. The question and techniques are critical, and the confidence to sit back and just listen and not jump in is so important. But you always have to think about giving and take on sometimes intense negotiations. Most mistakes are made by people who open their mouths too much.
They over promise and under deliver, which is you should be doing the exact opposite. And a lot of that has to do with patience and listening.
And we have something that we call the leverage cycle because it's such a simple set of concepts if there was a process.
But not everybody does it, which is if you have patience and listening, you're going to gather information that boosts your knowledge and information in context.
About the other side, about the environment, about the marketplace, and so on, leverage. Once you have that information in context and knowledge, it's then that you can really build your confidence and confidence is bilateral,.
You are not only trying to build your own confidence, you are trying to build the confidence in those people that you're dealing with. So they come because why would they listen?
When was the last time you had somebody trying to sell you something or do business with you and you considered a BSR, how well do you listen to those people? It shuts off immediately.
Was flattery a technique you can use to make people feel good about themselves?
Really, it goes back to one of these skill areas, the propensity to make concessions as a result of not having the knowledge or not having the confidence.
Concessions that actually don't make sense to the other side. We were talking about splitting the difference offline before, right.
Concessions, because we don't know enough to move the levers. We don't have the confidence and therefore that's a fallback. Let's split the difference.
If that's the case, why can't you go all the way to my side? If you're going to all halfway for no reason, come all the way for no reason.
So a lot of the skillsets deal with it. And this is not to ignore the fact that people operate under pressure. But you can be a lot more efficient if you understand the environment and save time.
In fact, we sometimes do these role plays and now we do role plays on actual deals. When I'm working with a client of mine, working on a deal then I'll role play with them, the scenarios that could occur, right?
We'll role-play what we've identified from looking at the risk-rewards, leverage us on the questions that could be asked, the concessions that could be requested, and so on.
So we like to role play that and a lot of the role plays we set them up so that first of all, it's like sparring, the first time you get hit in the face, it's not a good idea for that to be in the actual boxing ring.
You want a spar before you go in there. But these role plays are so important because they get people organized around managing the agenda.
And when you think about being under pressure and having a lack of time this is when people are scrambling and they're all over the place. They may come to principal sessions. They say stupid things because they're rushing. They don't listen.
And then I'll ask the folks that are role-playing and said, “look, you were given a set of facts. We've done this role-play without adequate preparation and you have half an hour to do this. Is it more important, less important to be disciplined about managing the agenda?”
And everyone says, “Of course, it's more important. You have less time, it's more important. But the propensity for the agenda to go out the window because we're scrambling, we're under pressure is way higher.”
So that dichotomy actually sets people up for failure. So one of the other areas that I want people circling back, one of the other areas that I really want people to focus on.
And I'm not sure it's a skill, but it's a discipline. And agenda management doesn't mean agenda control.
The other side is going to have their agenda. So I'm perfectly okay with them putting stuff on the agenda that is within their control and what they need to do.
It's perfectly legitimate, but I want to manage their agenda. I want to manage the resources that are going to be involved.
I want to manage as much as possible the roles of the people in the context of negotiations, not their professional roles in terms of their educational skills.
And I want to manage rules of engagement for my team, right? So we're all on the same page then to the extent I can hold the other side as well. So that is a long-winded way of saying patient solicitor, agenda management.
There are two agendas at play and really when you think about it. One is what we call the macro agenda, which is the entire process of interaction that we're going to have in order to get to the result in an M&A context.
That macro agenda, actually, if you think about it, could be called from the letter of intent the lockup period through due diligence, all the way to closing.
And then sometimes beyond closing, because there may be an earn-out, then maybe there's all kinds of things that happen after the closing in terms of integration and so on.
So that macro agenda is critical. And what I see mismanaged probably most often in that macro agenda is the three Rs, the resources, roles, and rules of engagement.
That due diligence takes way too long, why? Because we're not really organized in the way this is like project management.
You got to work backward from your close date and what are all the steps that we need to take in order to get there? You have other interviewers or interviewees you can talk about that subject. But so that's the macro agenda.
The micro agenda is what happens in each interaction you have with the other side, because every micro agenda has one goal, which is to move the ball forward.
So there has to be discipline around who you're going to have there, how are they going to interact? How are you going to summarize? Because you don't want to take on all the action items. On both sides, they have action items. So they have skin in the game.
What are you going to follow up with? Are you going to summarize everything so you can retain some level of draft control?
So there's a whole bunch of elements. It's almost like going through a pilot's checklist on this stuff. So agenda management both micro and macro is critical especially in business. We're not talking about what movie to go out to say, although that could be a very difficult negotiation.
Now each interaction, how often do people get them, you know what it's so easy. We often say, especially in large services deals, and a lot of deals I work on. A large services deal and they have elements of M&A because there's a lot of resources on outsourcing.
The whole micro agenda management on these large deals is people get together. And I remember what I was going to say. They get together frequently, yet the discipline around managing each of those interactions is not always there.
Okay. We're going to have a meeting tomorrow. Okay, great. Nobody bothers to go. Okay. What's the agenda for that meeting? What do we actually have to cover? It'll be nice. It'll be a good meeting. There'll be my friends, but what are we actually covering?
And it's so important to have at least some level of discipline. And by the way, the other side appreciates that. And on a large services deal, there's no buyer and seller in the traditional sense, but the service provider in a sense is the seller, right?
How you behave in engaging with the customer tells them a lot about how you're going to behave in the delivery of the service.
So if you're disciplined about agenda management, it gives them a lot of comfort that you are actually going to be able to carry out what you're promising to carry out. And it doesn't take a lot. You can send an agenda, say, okay, we're going to cover X, Y, and Z, three points.
And anything else, next steps, five points. And immediately the other side either will respond, say, okay, we also want to cover 1, 2, 3, which is great because now you're gathering information.
Or they'll say, okay, and now you have some level of agenda, control agenda management in place.
If you're thinking again about the M&A context you want the other side to be confident whether they are to the buyer or the seller that the right deal is the one with you.
Why is it that people in sales tend to struggle in negotiations? What is it that makes succeeding negotiations difficult?
First of all sellers, most people in sales, professionals in sales are pleasers if you think about it. They want to have a relationship, which is not bad.
But as a result, they feel like they have to say no to something that just doesn't come easily and they get into these cascades.
The behavior is so endemic that it just permeates the salesperson. I'll give you an example. We were about to purchase a new CRM tool for our business.
This will sound familiar to you because you get these kinds of calls from AT&T and from everybody.
So we're looking for a new CRM tool and we had a call and a discussion with this one company, a customer relationship management tool like Salesforce, I won't say who the company was.
And we say, okay, we have made up the number. We have 10 seats that we want to purchase initially. Maybe we'll go up to 20 all the time, and then we don't call them back.
And they had a price sheet for 10 it's this much for 20 it's this much. So the sales guy within 24 hours called us back. I spoke with my management, we can do 20% better on a 10 and 30% better on 20.
I go, what do you mean? You can do 20-10% better. No, 30, 30%, whatever the numbers. He says, no, we can make it cheaper for you. We can make, we want to incent you, which is a terrible word, by the way, we want to incent you to move to our CRM system.
I go, okay, very good. We'll get back to you. What does nothing, because we're still having our internal discussion and we're looking at alternatives.
Within 24 hours he calls up with his manager, says, yeah, we know you're very interested. We want your business. We want your business. We can do this for 50% off.
I haven't asked for one thing. I haven't made a request for a concession, nothing.
How credible are these guys? But they're so eager. They were nice. To me that behavior is both a combination of being aggressive and trying to please by guessing what will please the buyer.
I understand that working on a hundred deals because we're, now this is small sales. It's not a huge sale for them.
But how often do you get these calls from cable companies and telcos and whoever else, and they constantly give you a better deal at a better deal and none of it's principled in any way.
Just throw stuff up against the wall and see what sticks. And so it's not to be critical and the other thing is how often do you see an ad for a salesperson if you ever see ads for salespeople on LinkedIn or other places.
How often do you see one that says we want somebody who's a salesperson, who's patient and a good listener. We want somebody with hair on fire, who runs at a hundred miles an hour. That's what we want.
So it's hard to get the salespeople to be patient, but you know what sales are not, people are not educated just for sales coming out of college, they have other disciplines.
And very often we find that a lot of really good salespeople come out of services, come out of technology, backgrounds and so on because they actually are inquisitive.
Good consultants can make good salespeople as long as they get to the end of the job with the right training.
What tools and resources have you used that have helped you become a better negotiator?
In terms of resources, I am absolutely about using everything that's available on the web because there's so much available.
And you can find so much information about people that's important, pertinent information in LinkedIn for example, and I don't know why people don't turn to it more.
It always amazes me when I'm talking with people and they haven't done the basic research. That's so easy to do, by looking somebody up including me on occasion.
If I'm doing a deal with somebody and they haven't, we go through these laborious introductions and I always like to say something.
When somebody else is introducing themselves, I like to say something that will show them that I've done my homework.
And so in terms of resources, tools we have a portfolio of simple tools. I use a set of very simple tools, the risk-reward analysis, it says four or six box quadrant: Action, no action rewards, and risks.
It's something I can do on the back of an envelope. And I sit down with somebody on the other side and we can actually map it out, certainly with my team.
I go more at that and we'll map it up. We'll look at them, no action as well as alternatives and so on. That's one of my favorites because that to me tests the validity of a deal very early on.
And then as you evolve your portfolio information, you populated more and more, and it becomes a very robust portfolio of information, which you can leverage.
And then the corollary to that, which is something that I tend to use later in the cycle, is something I call the MID.
And all it is a tool for prioritizing issues that are going to come up in negotiations. And a lot of these issues are predictable, right? But you also prioritize those risk rewards.
Some are mandatory, if I don't address this risk, I am doing this deal. In fact, the things that I want to address are mandatory risk areas. Most people are prone to inertia.
That's the nature of it especially if you're dealing with people in the public sector or dealing with people with large bureaucratic companies. Inertia is the easiest default. So you want to get them off their ass.
So you really do have to understand those risks that are associated with them acting and the risks that are associated with them not acting. Cause that's the only way you're going to get them to move if there's a risk associated with their status quo.
I wanted to prioritize those because if I have a clear understanding of what's mandatory and the other thing about prioritization, MID stands for mandatory, important, desirable. I don't want 50 categories of priorities. It's just not useful.
If we have a hundred issues that were at some of these deals, you have a hundred issues. I want to know which ones are the musts, which ones are important, which are not nice to have. And that gives you a portfolio of trade-offs.
If I can give something that's desirable to me, but it's mandatory to the other side or important, I can get something else in return that's more important to me, that creates positive leverage in many respects.
So just the tools around prioritization are so important. And again, a lot of this Q&A.
Walk me through some of the tough scenarios. They're not very communicating much at all, and they're just very standoffish
I was with some colleagues from China and you always have some language and translation issues. And one of them was using the term that they are dealing with a savage.
Now, in fact, they weren't using the word neanderthal, but it was a similar term. Now I know that's a translation issue.
But obviously, they were dealing with somebody who was extremely aggressive and wasn't particularly polite about the way that they were interacting.
And actually those kinds of people I don't have as much of a problem with because those kinds of people, you just let them vent.
And then you need to be firm in your stances that you're going to pay. You need to operate on the risk side of the equation and not let them bully you with the positions.
So those to me are somewhat easier to deal with somebody who yells and screams a lot, let them back that's okay. And then you say, okay, now that you've taken a breath, can we continue? Don't let it take you off again. That's the key.
The key is to focus on the agenda and not be taken off your game. The more difficult person is the silent person, which is what you were alluding to. A person who gives you no input.
And in those situations, you have to have the confidence to say, look, I've put a set of questions or a set of proposals, whatever stage you're at in front of you.
If you're not going to give me any input, I don't know what else we have to talk about. And if all else fails, if you can escalate, if you're dealing with a CEO, you're not escalating.
But if you're dealing with somebody who's not the CEO, which is most of the time, maybe you can escalate.
Now, some situations that aren't that fixable, but you have, this is where patience comes in. You have got to outpatient the other side.
I want to hear some M&A examples because this audience, our audiences, a lot of corporate M&A practitioners, and I really want to get some examples of how some of these negotiation things apply in M&A or things that you've seen that's been interesting?
I mentioned a couple already in terms of discipline around the agenda management and a lot of M&A transactions that don't succeed because a lot of the discipline upfront isn't done in terms of due diligence properly including capabilities to integrate.
And I see that a lot of the large services deals involve outsourcing. And these all kinds of crazy things that happened a number of years ago.
People always have a high opinion of their own company, and it's almost like people who own a house have a higher opinion of their house, wanting to sell it higher than it actually is going to sell for because they've lived in it. They love their house.
So I had a client who I'm not going to name anything here, but they had done a series of products, very successful that actually there was a deep argument about the trademarks because there was a very large company that owned related trademarks.
So there was a huge overriding trademark issue there. And the owner of this company, my client, wanted to sell it. You know, he wants to sell the company. Because he's onto other things and a very successful entrepreneur.
And I told him you can't sell this company. We'll call him Jay Fuller that way I can refer to his name. I'd go, Jay, you can't sell this company, not subject to this kind of threat of trademark suits and all that because the entire company is built on the trademarks.
So he goes, watch me. Okay. So he goes out into the marketplace and he becomes his own broker. Usually, he didn't get a business broker here. He went, he decided he's going to do it, he's just doing things.
So he finds a public company out there and outfits that's willing to buy his company, but they don't want just his company. They like his company because it's associated with some other URLs that he owns. He owned a thousand different websites.
So we go, okay, now we realize we have some leverage and the leverage comes from somewhere else, not the company that we're trying to sell. And this is about looking for leverage in different places. And long story short is we did the deal.
There was a disclosure about the trademark issues and the letters and all, everything is open book. So it's all disclosed. Obviously, there was a basket of funds in the deal that was allocated towards remedying those representations and so on.
But we managed to sell the company, but we might also manage to allocate more value in the deal because we realized where the real leverage was.
Yes, there was value in the company and the products that he had, but there was more leverage on the side of the unknown which would be these websites that he had.
So he patched it all together and actually it turned out a couple of years later when the time period for the warranties and reps passed that only about 6, 7% out of the total price that he would have gotten was clawed back as a result of those reps.
My fear was it was going to be 30, 40%, which is why we tried to relocate and move more stuff to more of the compensation to other assets.
But again, you can find leverage and all stretch. Then to me, this was one of the strangest scenarios still because he really probably had no business selling that company under those circumstances. It was great.
It's interesting that you essentially need to put just as much effort as you're looking for points, leverage on the other side of the table on your own side of the table.
Without question leverage is bilateral, multilateral. Then you have done the sand and by the way, leverage shifts. It shifts constantly, shifts in a single meeting, and single meeting leverage will shift.
The other side will ask a question. You don't have an answer to, then all of a sudden you're on the defense.
And so you have to put a part of your planning, part of your rules of engagement. It's got to be how are we going to handle things that come up that surprise us. Because every meeting, I don't care how much you prepare, there will be times like that's an oxymoron.
How are you going to prepare for a surprise? If it's a surprise, I'm not prepared for it. If I'm prepared for it, it's not a surprise. But you can set a set of rules.
This is where you say, okay, if we get surprised and things are going good and we have good leverage, we have good momentum. Then the lead negotiator says, okay, keep going. Let's set that aside.
I don't want to say let's stable that because it's a completely opposite meeting in the UK versus here I'm tabling something in the UK means putting it on the table.
In the US it means taking it off the table, putting it aside. So if you say, okay, we'll set it aside, we'll keep going.
If you're getting pummeled all over the place, it's a little bit like a timeout. He says, okay, let's take a time out.
What's your favorite part of the negotiation process?
I love getting the deal done and closing a deal. And it's not just getting the deal done. It really isn't because a lot of them, the deals that I work on a long-term deal. Then they have to work for a long time. So getting a deal done in a way that actually works.
And yeah, that delivers two, three years out and the problem solving, I get pulled into a lot of troubled projects, trouble situations.
Seeing people's eyes light up when you start resolving them, starts turning around a tense and negative situation. Doesn't always work, but that to me is definitely that's what keeps them coming back.
Least favorite part of the negotiation process?
I think probably dealing with people that don't know what they’re doing. In fact, because to me it's almost impossible to have a discussion, get any movement.
People that don't know what they're doing, that are ill-informed have paralysis of indecision. And you're not going to get anywhere.
I would much rather deal with a hard-nosed negotiator, that pounds the table, whatever, that actually knows what they're doing.
Because at the end of the day, you could probably reason with them and you can figure out why they're taking the positions they're taking. And if they know what they're doing, you can reason with them.
If they don't know what they're doing then it becomes an issue. And the paralysis of the decision can be organizational paralysis.
I hate dealing with companies that have organizational paralysis because they're constantly moving people and they're constantly, they're in turmoil to such an extent.
People say you can make deals with companies or people that are in pain if they are experiencing extreme pain .
I think a lot of times those people who are experiencing extreme pain are worried about their jobs.
They're looking behind their back all the time and they are paralyzed. They're afraid to make decisions.
What about the part of negotiation you struggled the most with?
I think it relates to a lot of things we've talked about. In fact, to some extent, I struggle most with one of the things I'm passionate about, which is agenda management.
We all struggle with it. Especially, macro agenda management because getting people the resources lined up, especially on the other side is not always easy. You might have control over your own resource, but you don't control the resources on the other side.
That doesn't mean that, I think I'm probably more successful at it today than I was in the years ago when I was younger. But because I know that's also, that's an area that we all need to focus on.
It becomes second nature after a while, and the pace of doing a lot of business internationally with people where English is the second language actually has helped me on the basic piece.
Because you have to speak slowly, you have to avoid the idiomatic expressions, you have to explain to them if you do use an idiomatic expression, and you have to be conscious of those things.
English is my second language. It's a little bit easier for me than others but still, it's hard. Agenda management and pacing are not easy.
What's the craziest thing you've seen in M&A?
The craziest thing. Okay. I'll use one. This is in M&A, it is actually, it’s not inherited because it was M&A, but it happened to be an M&A deal.
We were doing a deal overseas where we were representing a company that was selling part of its business, a certain type of technology.
And the other side that was going to purchase the part of the business that was going to create a very famous company one of the largest companies in the world.
They were going to use this technology for some of their core products. And so it was critical to them. It was critical to us.
And I was representing also a world-class company. We had exchanged some contracts. And we go into our first full-blown meeting to have a discussion with them and we haven't even sat down.
And at that point, we know the lead negotiator on the other side happened to be the assistant general counsel, she was a very tough, very smart lady.
We hadn't even sat down and she said to us, we're going to use our contract. If you don't like it, you can leave.
Okay. So this is the way the first meeting starts. It's a very complex deal. It has to be done by the end of the year. I think this must've been the September, October timeframe because the use of technology has to start in a cycle, which started in January.
And she starts with that question and we knew that they had an adversarial approach. And so the first thing I gotta do, me and my partner had to do was reassure our team that hopefully, this is not going to continue.
So what we did was we said to them, we could have easily said, okay, fine. Let's keep going. Because we're not losing a deal over whose contract we use. Okay. Just to be clear.
By the way, neither are they. Because it's too important for both sides. You're talking about hundreds of millions actually. So I asked, still saying anything regarding that specific question.
I said, can we have a room? So we were in their facility. Can we have a room so we can go and discuss this amongst ourselves? What do you mean?
You pose the question that, we must use your agreement or we can leave. We have to, that's a serious question. Will we need to consider it.
And right away, we saw that they were getting nervous. They found us a room. We took half an hour and in that half an hour, her second in command knocked on the door about four or five times.
Starting with 10 minutes, 15 minutes, 20 minutes. Are you ready? So we can start discussing it because we had an agenda.
That we had worked on an agenda with them that we were supposed to cover. And my entire intent in that room was to make them nervous to try to cut through this BS, this posturing nonsense.
And my team was, they were nervous initially. I said, look, we're not losing the deal on which contracts to use. And we came up with a solution, which was a terrible solution.
If I ever do it again, I would probably quit, but it was, it worked for the time being, which was to do a hybrid contract where we would exchange everything on both contracts.
So I made it a nightmare, but at least with a cave on that point. But that was a strange negotiation. They behaved after we came back, they behaved for the next 24 hours.
After that, they went back to the same behavior that they had before. The deal did get done by the way and it was successful.
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