I wrote a post about a month a go in my M&A series about drawing lines in the sand (see the original post here).  In it I argued that people negotiating m&adeals are too quick to dig in and make statements that they can’t/don’t intend to back up.  I was reading Ben’s blog today – his latest post references a HBS article on a similar subject that is worth a read.  Here’s the quote that Ben pulled from the article that pretty much sums up its contents.  When you look at the article pay attention to their point # 5 – it’s exactly what I was talking about in my earlier post. “In the classic game of Chicken, two drivers on a crash course speed toward each other. The rules are simple: Whoever swerves first and avoids collision loses, and whoever is brave enough to stay the course wins. Of course, when both drivers stay the course, they collide and die. Clearly, this is not a game for the faint-hearted. But bravado alone doesn’t guarantee a win. Your opponent has to believe that you’re gutsy enough to stay the course, or he may do the same until the very end. How do you win at Chicken? One approach would be to talk tough beforehand. You might behave irrationally to suggest that you wouldn’t swerve even to save your life. Once the game begins, however, your threat simply may not be credible. Now consider this strategy: Once the cars are headed directly toward each other, you unscrew your steering wheel and throw it out the window, making sure that your opponent sees you do it. Foolish? So it would seem, but your threat is now entirely credible. You can’t change course even if you wanted to. It’s up to your opponent to decide whether to lose the game or die. The odds are in your favor.”

By now everyone has heard that Sun has agreed to acquire Colorado based storage company StorageTek. The press release was pretty ubiquitous, but if you haven’t checked out the presentation that accompanied it, it’s wroth skimming through here.

Good for Sun . . . good for StorageTek . . . bla bla shareholders .
. . bla bla convergence . . . bla bla network and data management. . . bla bla bla. Ok – with that out of the way I wanted to touch on a disturbing trend in the Colorado market, particularly in technology.

We’re losing our CO based companies.

The truly scary part is that we didn’t start out with many to begin with. This is a huge problem, in my view, for the Colorado market.  I’ve participated in a number of government economic roundtable events in the past few years which all asked the question of what we could do to make the Denver/Boulder markets stronger. Inevitably somewhere in the conversation the fact that the Front Range has essentially no truly large companies – tech or otherwise – comes up as a key problem. It’s not that Denver/Boulder is a bad place to start or run a company – we have many other attributes (strong labor force; high quality of life; etc.) that make for a good business environment. But we’re missing a piece that has been critical of other markets that have become areas you think about when you think of start-up technology businesses (think Bay Area, Seattle, Austin, Boston, Minneapolis – each of whom supports large, market leadingbusinesses).  Sure – we have Qwest and First Data; EchoStar and Ball Corp; Sun has a large presence here, as does HP.  But the list is short and the companies on the list aren’t the kind to be spinning off side projects and generally supporting the start-up world.

StorageTek has been an exception to this – spawning several successful start-ups and more generally ing a favorable environment for young storage businesses in the Boulder area (which, along with pharma, is really what Boulder is known for).

So goodbye StorageTek. We’ll miss you.

This is the second in a series of posts on the art of mergers and acquisitions. See the first post in the series here. I think the most important part of being an effective negotiator is not being a persuasive talker (although that is a skill that is helpful) – but rather being a very good listener. Its tempting to spend your time in a negotiation thinking about all the great points you can make and concocting elaborate strategies for getting your views across to the other party, but one can’t really do that and effectively hear what someone else is saying at the same time. The best negotiators spend the time when someone else is talking to listen intently to what is being said, knowing that there’s always plenty of time to think about your response after the other side has made its point. Personally I like to take detailed notes ofthe points that are being made – it keeps me focused on the conversation (helpful in long negotiating sessions) and provides me with a record to later use in working on my responses. I also generally don’t like to take a combative approach in negotiating and listening to what people are actually saying lets me better understand what points are truly most important to them and, perhaps more importantly, the rationale behind their thinking. There’s a corollary to this idea that’s equally important. Silence can be your best friend in a negotiation. It’s a natural by-product of listening well (since you won’t necessarily be ready to respond the second someone else stops talking) and something that should be embraced. Interestingly, most people seem to be afraid of long pauses – particularly in rooms full of people. Their natural reaction to this is to try to fill the silence with words, which leads many people to just keep running on if you aren’t talking. This can be a huge advantage – I’ve sat across the table from people I was working on a deal with numerous times and watched them start to back off the positions they had just firmly stated without my ever having to say a word. I like silence in a negotiation – it gives me time to think, to size up what the other side is really saying and to look at their body language (I almost always look directly at the person I’m negotiating with in a pause – it tends to provoke them to keep talking, which generally works in my favor).

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Ernst and Young puts out a quarterly report on the VC industry.  It’s full of fantastic data (from their VentureOne group).  I just got my book today and am still sorting through it – I’ll put up a post soon with some of the take-aways.

Something that struck me right away was the list of the top acquirers of VC-backed companies.  They are :

IBM (5)
Cisco (5)
Tekelec (4)
C-COR (4)
Broadcom (4)
Thomson (3)
Motorola (3)
IAC (3)
Alcatel(3)

Not surprising to see IBM and Cisco on the list.  I was surprised not to see Microsoft,  Mercury (both of whom seem to be pretty active acquirers)  and a few other names on the list (didn’t Siebel acquire 3 or 4 companies last year?).  My  real surprise though was that this group of the 9 top acquirers of venture companies only accounted for only about 8% of all the venture backed m&a last year.  I thought there would have been more of a concentration of buyers, but apparently the majority of the list is made up of companies that bought only one venture backed company during the year.

I’ve been involved in executing mergers and acquisitions for a large part of my career. I’ve never stopped to count the number of deals I’ve been involved with, but would guess that the total is several hundred, with probably somewhere between 50 and 75 where I had primary responsibility for negotiating (the rest I was an advisor to). I’ve seen a lot of different types of deals over the years and many many different negotiating tactics (my own style varies from deal to deal, and my default style has changed a lot over the years – a topic for another post). Over the next few months I’m going to do a series of posts on m&a – some general comments on the subject; some war stories; some m&a 101; etc. I’ll try to keep them short and to the point. My first post is on a topic that I’ve experienced a lot recently – ultimatums. There’s definitely a place for ‘this is the best we’re going to be able to do’ statements in deal negotiating, but too often people use this tactic when they don’t mean it. The result is something akin to the never cry wolf fairy tail – but with a faster outcome. It only takes one time drawing a line and then crossing over it to completely lose your deal credibility. Hearing about a company’s ‘best and final’ offer 5 times over the course of 2 days doesn’t drive the best deal – it just annoys all involved and has the affect of disengaging the party you are negotiating with and ultimately making you negotiate against yourself (which is #1 on the negotiating 101 list of things not to do). I respect that there is a certain amount of gamesmanship involved in negotiating a transaction – both sides in a deal understand that. But outright lying (i.e., saying something is the best you can do when its not) and then stepping right through your lie flies in the face of good negotiating tactics and leads to busted deals and to the party you are negotiating with retrenching rather than trying to reach a happy medium.

So . . . please feel free to draw a line in the sand – just only do it when you really mean it.