Why Negotiation Matters
When the time came to sell, my CFO, co-founder and I all agreed on hiring the banker who was the best negotiator. We believed that, as with doctors and software developers, the top few negotiators are many times better than the rest. Selfishly, I was thinking that this was my chance to work with a black-belt negotiator, and learn.
So what did I learn?
Each “move” was deliberate. We created an overall plan, and tuned it during constant huddles. We considered who should talk to whom about what. We thought up multiple solutions to each issue, clarified our interests (Stan’s favorite word) and made sure we had acceptable and desirable positions on each deal or business point. While I spoke the most lines, the team scripted the play together.
Good-cop, bad-cop is not just a strategy for cops. We decided that my role as CEO was to get the acquirer to fall in love with our company. I avoided involvement in detailed disputes that might detract from this feeling. I was all about getting it to work: I led discussions of what the companies could do together, generating a strategy and business plan, getting everyone excited about it, and beginning to work as a team instead of opposing sides. Gary, our mostly sober CFO, the banker, and the lawyers, played the opposite roles. And that was important too – not being rosy all the time and actively revealing bad news and differences built the trust we needed to get our deal done.
Our deal almost went off the rails, several times, usually in the middle of the night. Inevitably, someone got “positional.” A Board member got stuck on the pricing of the earn-out, an accountant dug in his heals over the interpretation of the $230,000 copier lease, and a lawyer insisted on an omitted protection. Tired people were the most positional. My counterpart CEO, a cool English gentleman, was a master of getting things back on track. To cut through logjams, the CEOs stepped in from outside the specific issue, dropped a joke or a complement, or diverted attention from the conflict to a looming deadline, or the dream of the deal.
The Adversary Within
Our banker called it from the outset – it was tougher to get our Board to “yes” than our acquirer. Ours was a Board of multiple viewpoints, all well-intentioned, all experienced deal-makers, who sometimes thought that they were being helpful by sticking to their guns on a point. And, many times, they were right. But we spent as much energy and time strategizing about our own Board. I think this was true of the other side as well, who had to deal with public shareholders.
We gained our last 5% over several weeks, inch by inch. Each move required a different negotiation technique: appealing to a third-party standard, bridging different interests with a creative if-then deal, sometimes just knowing when to stick to our guns. The main point was that it was patience, strategy, focus and teamwork that pushed our last pieces across the board.
It worked. Over about three months, we negotiated our acquirer up about 20% against themselves and closed a deal at the highest revenue multiple in our industry, costing our acquirer roughly half its market cap. And actually, both sides won. I believe our acquirer saved its future with our deal, and it was unpopular with many of their constituencies.
I love hiring teachers and coaches instead of outsourcing problems to bankers or consultants. I’m sure my team and I got more out of this experience than just the specific result. And that’s what I love about the art of negotiation – think of the value of being 2% better at every negotiation you have in front of you – it was even worth the sizable fees we paid.