Four things to do when your deal dies
Putting together a merger, capital raise or joint venture is a tricky business - it often takes longer than you expected, takes more of your own time and energy than you anticipated and is rife with ups and downs that are common in high-stakes sales. In short, these deals can be very emotionally charged.
We have a saying that every deal dies three times before it closes. In other words, at least three times during a negotiation of such consequence, one or both parties will be frustrated or exhausted to such an extent that they walk away from the table, leaving everyone to wonder if there is anything salvageable.
As an investor, buyer or seller, what should you do when your deal dies? Here are four things we recommend you consider:
1) Take a Step Back; Take a Deep Breath. Before you begin negotiating a big transaction, you should write down with as much specificity as you can what it is you are attempting to accomplish with the transaction. These goals can be financial (i.e., "how much"), as well as qualitative (improving your strategic positioning, aligning with a bigger partner, expanding your channel, enhancing your quality of life, etc.).
Doing a deal just to do a deal will almost never lead to a good outcome in our experience. Then, when the other side throws you a curve ball, consciously take some time to step back and ask yourself, "Does the deal, as revised, still meet or exceed the written objectives I laid out initially?" If so, then swallow your irritation, and make the most of the deal that is on the table.
If not, then you can either try to get it back to the point where it meets your needs, or simply walk away. Too many times we have seen clients get so wrapped up in the "winning" that they forget the original objectives and pass on a deal that otherwise would have met those objectives.
2) Ask Questions. One of the common mistakes even professionals make is to assume they understand what the other person is really saying, and why they are saying it. Many times we question the motives of the other side and when this happens, we become skeptical of and hostile to almost any change in a deal.
After you have taken a deep breath, try to engage the other side in some questions. Try to figure out what is really going on with them, what interests are they really trying to protect, what are they really trying to accomplish, etc. By asking these questions, it will show that you are indeed concerned about the other side's interest, you may uncover something about their interests or motivations that you did not previously understand, and you will be better equipped to start problem solving.
3) Be the Adult in the Relationship. I had a mentor who used to say that in any relationship, all you need is one "adult" to make it work. If you have two adults in a relationship, it will work, if you have one adult and one "child" in a relationship it will work, but if you have two "children" in a relationship, it is destined to fail.
So, in a negotiation when emotions are running high, the child in each of us is likely to come out. Resist this urge (after you have taken your deep breath), and be the "adult" in the relationship. There is a lot of power that comes from this - you are able to guide the discussion, you will solve problems more effectively, and you will be able to control the emotions in the dialogue and help the other party "mature" in the discussion. So, as tempting as it is to rant and rave, resist the urge and consciously be the "adult."
4) Examine Your Options. No one can be forced to do any deal - in other words, no matter how dire it might seem, you can always walk away from a deal. However, in order to make the best decision in the context of a failed deal, you need to understand what Roger Fisher refers to as your BATNA - your Best Alternative to a Negotiated Agreement.
In other words, if you don't do this deal, what is your next best alternative? If your BATNA is better than the revised deal the other side might be offering up, then you can make that decision with confidence it is your best decision. Too many times, we see clients who have made significant financial and emotional investments in a deal feel like they "must" complete it. Nothing could be further from the truth - those costs are sunk, you won't recover them, but you can work to make your circumstances be the best they possibly can.
Deals will die before you close them, but with the right mental frame of mind, keeping your objectives in mind, asking questions, being the "adult" in the relationship and understanding your options, you will increase your odds substantially of having a successful outcome.
Chris Younger is Managing Director of CapitalValue Advisors, LLC (www.capitalvalue.net). Chris has over 20 years of experience in structuring deals and managing businesses, sales and operations. He was the co-founder and president of a 4,200-employee telecommunications company, has purchased and sold over 30 business as a principal and investor, and has been an advisor to hundreds of companies. Additionally, he is the co-author with David Tolson, of the book Harvest: The Definitive Guide To Selling Your Company, available on Amazon. He can be contacted at firstname.lastname@example.org.