Monday, November 12, 2012

Listening, Understanding and Deal Structure

Continuing our more detailed examination of the 14 keys to acquisition success

4.     Listen – and remember what you say may not be what is heard.  Also, what is said may not be what is meant!

In the words of Paul Simon, "A man hears what he wants to hear and disregards the rest..."

Anyone who has ever been in a relationship knows that what is said may be different from what is heard.  Moreover, what is said may even be different from what is meant.  It's true in romantic relationships, it is true in parenting, and it is true in negotiating the deal.

We can't structure a deal until we understand the parameters that are important to both sides of the transaction.  To structure a winning deal we have to understand the zone of potential agreement (ZOPA) and exactly what that looks like to all concerned.  That is, what are the specific objectives of the selling and buying parties?  

Remember our previous discussion about the interrelated nature of deal design.  It is not just about price.  There are so many factors that could be important to a buyer or seller and each one of these creates an opportunity for deal design.  Let's think about just a few of the specific factors that could matter to a seller:

  • Price - obviously, more is preferred
  • Taxes - less is preferred
  • Form of payment - cash is certain, stock gives upside and downside potential and creates uncertainty
  • Legacy - founders want to preserve the company name, retiring CEOs want their records intact
  • Employees - executives often want to protect their employees from spinoffs, layoffs and other disruptive actions
  • Control - existing CEOs generally expect additional compensation to relinquish control; boards of directors may be reluctant to give up seats
  • Speed - a fast transition is generally preferred
  • Social terms - where will the new, merged company will be headquartered? who will be CEO?  how will the board be structured? what will it be called?

We could continue for quite some time but let's stop for now.  First, however, note how each of these items influences others.  Form of payment determines the tax structure and affects the speed of the transaction.  Payments to retiring CEOs impact price and ultimately rate of return, etc.  Thus, each of the factors are interrelated.  Recognizing the tradeoffs is the first step to proper deal design. But deal design, in turn, starts with listening.  What are the expectations and desires of the acquiring firm?  What does 'Control' really mean to the selling party?  Plus, in a world of myriad aspects of deal design, which of these are the most important to the other party?  What are the relative weights assigned to each?  In other words, 'What really Matters?'

All of these factors produce a rich palette from which to craft a negotiation that looks like a win on both sides.  It starts, however with listening.  Many of us working in mergers and acquisitions are naturally attracted to numbers.  We enjoy analysis and projection and never saw a spreadsheet or graph that couldn't hold some interest.  But the numbers on our spreadsheets are based on the inputs from people on both sides of the deal - people from finance and accounting but also marketing, law, operations, and management.  Buyers - and sellers.  All people.  Consequently, it is even more important that we stop and remember a quote attributed to author Larry Barker:

""Effective listeners remember that 'words have no meaning - people have meaning'.  The assignment of meaning to a term is an internal process; meaning comes from inside us. And although our experiences, knowledge and attitudes differ, we often misinterpret each other’s messages while under the illusion that a common understanding has been achieved."

Before you structure the deal, remember: what is said is not always what is heard or meant!

All the best,


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