M&A Part I – Lines in the Sand

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.

  • Drawing lines in the sand is often just bad negotiation, even when it is truly meant. It conveys all sorts of information about the side using the statement, ranging from financial conditions (“if that’s all you can really afford to pay, maybe I don’t want to sell you my company and come work for you”) to authority (“if that’s all you are authorized to pay, maybe I am wasting my time and I should talk to your boss”).
    By the way, Seth, you weren’t kidding in “Data are plural!” about having problems with “affect” and “effect”… 😉

  • Former Banker

    Good comments about negotiating. As a former banker, I learned quickly that the best way to get what you want out of an negotiation is to have alternatives. The one alternative that everyone hates to hear (or use) is that the deal won’t get done. I’ve pinned many counterparties to the wall by getting up and walking from a deal. Interestingly, public company execs are often the audience that responds most effectively to this tactic…