Saturday, December 24, 2005

Holiday Time - M&A Time

I'm enjoying my first Christmas in at least 4 years in which I'm not neck deep in a deal. To judge by the spate of recently-announced transactions, I'm in the minority this year.

I spent nearly all of December 2001 in New York, working on a deal that we walked from abruptly as wireless valuations cratered rapidly in early January 2002. The following December saw a similar scene, only this time a much bigger deal that never made it out of Seattle before having the plug pulled. So much of this work is spent on things that never come to fruition . . .

December 2003 marked the beginning of the process of selling AT&T Wireless. I remember having a particularly acrimonious call with my counterpart at one of the bidders a day or two before Christmas, and then taking out some frustration by felling several trees that had been damaged in an ice storm the night before (the short-handled axe is an underappreciated tool). By last December, I was living a different kind of frustration, dealing with Cingular and its parents as we tried to divest several hundred million dollars of assets to comply with the DOJ's consent decree on the merger.

What is it about the holidays that brings out such a frenzy of deal-making? Does the winter's waning daylight, forcing us indoors, cause the kind of corporate conjugation New Yorkers would associate with blackouts? Or is it just the draw of doing holiday shopping in Midtown Manhattan?

Monday, December 19, 2005

Google - AOL

Google's much-hyped investment in AOL illustrates the value of keeping deals as simple as possible. There can be a great deal of pressure, particularly in large organizations, to structure deals in a way that mitigates the most risk and pleases the most constituencies. That's fine in some cases, but not in a competitive bidding situation, and particularly not in a case like this, where the stakes were so high for Microsoft's opponent. Google NEEDED to keep AOL close, and Microsoft should have pulled out the stops to prevent this from happening.

Sure, valuation had a lot to do with it, but AOL certainly could have gotten the same price from Microsoft. However, while Google's deal is a straightforward minority investment with some ancillary commercial deals, Microsoft apparently insisted on structuring its investment as a joint venture.

If you're AOL, would you rather deal with an investor or a JV partner (with all the attendant minority rights, exit and management issues)? Couple that with Google's greater willingness to push the envelope on promoting AOL's ads, and this was probably an easy decision for AOL even if the parties were even on valuation.

Thursday, December 15, 2005

More J&J - Guidant

Good in-depth article via Wharton on use of MAC clauses. It will be amusing to watch this one play out now that Boston Scientific has lobbed a bid in near J&J's original price. Does J&J really believe Guidant's issues cripple it as an asset, or did J&J seize an opportunity to try and get a better price?

The article also alludes to the complicated decision-making process a seller has to go through in evaluating multiple offers. Price is important, but not everything. In a stock deal, the seller has to decide which buyer will do better integrating and realizing the synergies of the deal, thus creating more shareholder value in the new company. Guidant will also obviously be concerned about certainty of getting to closing at the agreed-upon price, given their experience with J&J (my guess is that a Guidant - BSX deal will have a VERY specific MAC clause). In other situations, sellers have to be concerned about closing happening at all. Foreign buyers, companies with activist shareholders, and large buyers who by the merger create industry concentration all may find themselves needing to offer a premium price to win the deal.

Thursday, December 01, 2005

Negotiation - Listening

I am modestly surprised at how consistently I still run across people in love with the sound of their own voice, who don’t pay enough attention to what others in the room are saying. For me, I’d guess that in a typical two-person business negotiation I do no more than 30-35% of the talking. I really prefer to listen, ask follow-up questions and keep the other side talking. I find this tremendously helpful in what I do, yet I still feel like listening is underappreciated as a negotiating tool.

I find two primary benefits to listening during a negotiation, but they can require different ways to focus the listening. The first is the easy one – listening to the other side’s point of view allows you to craft more creative solutions to their business problem that also work for you (the cliché “win-win” outcome), or more articulate and forceful arguments about why their positions are wrong or won’t work. Understanding what is really driving the people on the other side of the table is tremendously helpful. I don't mean understanding their negotiating positions - those are always right out in the open. I'm talking about the reasons why they are taking those positions, which often can only be gotten to via active listening and follow-up questions. Perhaps the other side has already received BOD approval to do the deal at a certain price, but will need to go back through the approval process to change the terms. Maybe the CEO got burned investing in his brother-in-law’s car dealership 20 years ago, and now the company insists on overreaching apportionment of liability. There's no end to the factors that can drive the positions we take in negotiation, but by actively listening (not just nodding your head robotically while mentally rehearsing your witty rejoinder) and asking probing questions, you can ferret these issues out and work on the solution to the real problem at hand.

The second benefit to listening, which can be harder to focus on because it seems inefficient, is what I call the “day in court” phenomenon. Some negotiators just need to be heard. It can be their egos, a need to be able to return to their senior management and truthfully report that they explained all of their positions to a receptive audience (an audience which still, incidentally, said “no”), or just a need to vent. But it can be hard to fight the urge to cut someone off. You’ll find yourself in a negotiation, and you know precisely what the other guy is going to say. You’re a smart fellow with lots of good uses for his time, so you cut in mid-sentence and say “no.” No question there are times, particularly in lengthy M&A negotiations, when you need to do this. But if it is your primary style you will come across as insufferably arrogant. That doesn’t make it easy to do business. Unless the other side has no leverage whatsover (and sometimes even then), bullying only makes them dig in. On important issues – even when I know without a doubt that I am going to reject the argument that is being spun to me – I will hear the person out, and perhaps even ask a follow-up question or two. It shows respect and indicates a consideration of the opposing point of view. The person I'm negotiating with can then accede to my point without feeling like they are knuckling under - and believe me, considerations of ego and face-saving are alive and well in American business negotiations. Furthermore, I have consistently found that opponents will treat my positions with greater deference if they feel I have fully considered theirs in reaching my conclusion.

Tuesday, November 15, 2005

J&J - Guidant Back On

Also not surprisingly, J&J and Guidant negotiated a new price - a $4B discount off the original price. Nice work by J&J. It's unusual enough for a buyer to invoke the MAC clause, but this discount - nearly 20% off the original price - is huge, and is likely well in excess of the drop in Guidant's value caused by post-signing events.

Monday, November 07, 2005

Guidant's MAC

Nor surprisingly, Guidant sued Johnson & Johnson today over the latter's backing out of its $26B acquisition. While there is never a good time for a business to have the wheels fall off, there are few that compare in terms of sheer bad timing to the period between signing and closing the sale of your company. Since signing the deal, Guidant has faced product recalls, Spitzer-ization, and an SEC investigation. J&J decided to invoke the Material Adverse Change provision in the agreement and declare the deal off. Of course, they'd be happy to put it back on - at a lower price.

I can really feel for Guidant, having spent most of 2004 working to close the acquisition of my company. I know that Guidant's senior management must have been living and dying by that MAC clause, wondering if the next shoe to fall would put their buyer over the top. This is why negotiating the MAC clause is so important for a seller. It's hard enough for a buyer to walk on a vague MAC clause, but if you are able to negotiate in some specific concepts - either storm clouds you are aware of or just big risks unique to your industry or operations - you will sleep a lot better at night. When we sold AT&T Wireless, we had a couple of really ugly issues hit our business in the midst of running our auction. With telecom mergers taking 9 months or more to close, we tried to push as much of the risk of those problems continuing onto the buyers. We also wanted to make it clear that the issues had been disclosed, the buyers knew about them, and they went ahead with the purchase anyway. Our one-paragraph MAC clause was the most bitterly-fought provision in the whole merger agreement, but it was well worth it.

As a seller, you care about nothing so much as certainty of closing. Every deal has specific issues that can impact whether you get to closing - regulatory approvals, shareholder votes, etc. - but the MAC clause is a constant, and something that deserves a great deal of attention when negotiating every deal. Of course, as a buyer you need to be equally aware of attempts to push too much into the MAC clause. Although the bar to invoking a MAC is very high to begin with, there's no point in boxing yourself in if it can be avoided - or unless you get sufficient price concessions.

Wednesday, November 02, 2005

Selling the Deal

Seth Levine’s post on why entrepreneurs shouldn’t view their initial meeting with a VC as a one-shot deal rang particularly true for me yesterday when I met with a company I’ve been trying to do a deal with for 6 months. So much of corporate development is creating relationships with likely targets, whether they be large companies with businesses or assets that may need to be spun off, or small ventures that could be rolled up one day. And when you make a call to pitch a particular deal idea, it’s highly likely that you’ll get some manner of “no”. Like an entrepreneur, the kind of “no” you get – and what you do with it – depends entirely on the relationships you can establish. The guys I met with yesterday have told me no several times, as have I to their counter-proposals, but we’ve continued to talk – amicably – about what could be done to meet both of our needs. The outcome of all this dialogue is that we have finally reached a deal that works.

Circumstances change, and a deal structure that doesn’t make sense to a seller today may make a world of sense in three months. Sure, I sometimes feel like the persistant salesperson. But by leaving the door open, by being proactive and calling just to check in, I greatly increase the chance of being in front of the deal when it finally makes sense. And it's not just timing and luck - those calls and dialogue build the trust and information exchange that can create a deal where it otherwise would not ever happen.

Wednesday, October 26, 2005

Portland's Wireless Pipe Dream

I attended a presentation in Portland, Oregon this week on the City of Portland’s “Unwired Portland” initiative to bring WiMax/Wi-Fi to the city. Although Portland has wisely shied away from the prospect of owning and operating a system themselves, they’re still dreaming. The city wants a commercial enterprise to build a network that:

• Provides free access for all to a “walled garden” of city-related sites
• Provides low-cost access to the disadvantaged
• Provides high QOS service for public safety and other city uses
• Is lower cost to all end users than existing broadband options
• Is offered at wholesale cost to the city
• Is provided on an open access basis so any ISP can resell the service

There was lots of discussion about the wonders of wireless, bridging the digital divide and all the great things that could be done (wireless meter reading; on-site building permits, etc) with wireless, but little acknowledgement of the real obstacles to making this work. The hardware to build networks may be getting cheaper, but the cost of operating those networks and providing customer service is rising. Implicit in the City’s proposal is an assumption that existing commercial services generate such excess profits that operators will be clamoring to build and operate this, despite the multiple ways the City’s requirements drive margins down and costs up. That's not the case. While someone may step up to provide some of this initially (and even Google's much-touted proposal for San Francisco wouldn't come close to providing what Portland wants), I predict that there will never be a wireless service in Portland resembling the “wish list” above.

It’s a shame the City can’t scale back its plans and focus on something workable. Solve the City’s needs by buying service from commercial operators. Verizon offers EV-DO in Portland, and Cingular will be there with HSDPA within six months. Better yet, buy from Clearwire once we launch service there! As for the digital divide issue, are there really a lot of disadvantaged citizens out there, toting laptops but stymied from joining the rest of us on the internet by the lack of a free broadband wireless connection? Besides, Portland, like many cities, is full of free Wi-Fi hotspots. The Personal Telco project in Portland has set up free sites all over the place – in cafes, streets, parks, etc. Publicize those to the disadvantaged, set a few new ones up in easy-to-access places – in short, do the easy, quick things rather than the grand, overarching scheme.

Friday, October 21, 2005

More on Working Capital

Questions about inventory and liabilities in working capital – a buyer’s level of concern about these matters will depend a lot on what kind of business is being purchased. In the case of inventory, I would usually have a physical audit done even where inventory is relatively nominal. It’s easy and cheap to do. I wouldn’t do it pre-closing, since there will be a closing statement of working capital that includes inventory levels. You can reconcile to that statement via a post-closing physical audit done as part of the working capital adjustment process. If the inventory records don’t reconcile the seller has to true up.

If inventory is a bigger part of the deal, unique, or of indeterminate quality, you’d want to physically review it as part of diligence. You might go so far as to get specific reps to address any particular inventory concerns. Typically, however, you’ll simply verify that inventory is present pre-close, take the closing statement, and then true up post-closing. In the corporate world, this work will most likely be done by your accounting team, so be sure to stay on their good side.

Liabilities are also pretty easy. You’re going to do a full diligence on your target, much of which will relate to accounting. It won’t take much digging to find understated or omitted payables. If you do find them, you’d want to consider walking – it’s a bit of a red flag . . . Lagging payables that come through post-signing should flow right into any working capital adjustment process.

Otherwise, you account for post-closing unknowns – whether unreported liabilities or litigation – via the reps and warranties and your indemnity rights (asset deals) and price (stock deals). That raises a subject for a later post – why thorough diligence is far more important in stock deals than it is in asset deals.

Tuesday, October 18, 2005

Working Capital

Brad Feld is running a very informative series on Letters of Intent; the latest post covers price and structure. Brad's comments on working capital shouldn't be taken lightly just because in his example they only account for $1 million in a $150 million deal - working capital is an area where it's very easy for the parties to talk past each other and end up with a very ugly dispute during negotiation of the definitives or even post-closing. It's also an area where you'll want to make sure your accounting professionals are at your side as you draft the LOI and the working capital provisions in the agreement.

While not a major issue in early stage companies, receivables can be a big point of contention in mature company deals, as they can represent several percentage points on the value of a deal. For example, a company selling for $100 million could easily have $4 million in receivables. Absent an explicit discussion of working capital (and many deals get to the point of drafting definitives without ever going through an LOI), the buyer may well assume that the $4 million receivable is an asset included in the purchase price, while the seller assumes it is on top of the purchase price as a working capital adjustment. This is not a negotiation you want to be having after you've already agreed on price.

As the buyer you might even consider detailing in the LOI the treatment of aged receiveables in the working capital adjustment. While you may pay full value for current receivables, you'll probably pay next to nothing (or nothing) for receiveables more than 90-120 days old, and a sliding scale in between. This will be a negotiation of its own, as it directly impacts purchase price. A lot will depend on where you are in diligence, whether the business is similar to your core business, and what your own internal rules are on creating reserves for receivables.

Tuesday, October 11, 2005

Game Theory Nobel

The 2005 Nobel prize for economics went to a couple of long-time stivers in the field of game theory, Thomas Schelling and Robert Aumann. One central finding of game theory is that cooperation and giving up short term gains leads to greater long-term advantage. This finding is styled as counter-intuitive, but I suspect that to most who spend a lot of time negotiating it seems pretty obvious.

While there are situations that call for a take-no-prisoners, zero-sum style of negotiating, the vast majority of cases call for a more nuanced approach. Game theory experiments show that working cooperatively toward a mutually-acceptable solution, and even sometimes giving up points in the margins, ultimately leads to the best outcomes. How much more compelling is this conclusion in business, where most negotiations involve trading partners who you will deal with again and again?

Friday, October 07, 2005

Ig Nobel-ists

I love the Ig Nobel prizes, awarded every year at Harvard by the Annals of Improbable Research for deserving works that meet this simple but expansive criteria: "Achievements that cannot or should not be reproduced."

See here for the complete list of 2005 winners, highlights of which include: Medicine - "Neuticles" replacement gear for fixed dogs, Literature - Nigerian e-mail scams, and Chemistry - a scientific study determining, once and for all, whether humans swim faster in water or in syrup (no, I'm not going to spoil the surprise by telling).

Thursday, October 06, 2005

H.R. - actively harmful?

Great interview in Business Week Online with Marcus Buckingham. Despite the provocative title, Buckingham makes some great points about the need for managers and organizations to focus on developing their peoples' strengths rather than curing weaknesses.

Friday, September 30, 2005

Dealing with Google

Love this post from Chris Sacca with advice on how to pitch business proposals to Google. With the attention Google gets, I'm sure Chris needed to vent about the volume of crap he sees every day!

Two points resonate for me, particularly in the world of larger deals where you have to keep working together after messing up like this: Don't go over the head of the person you're dealing with (unless you ABSOLUTELY have to), and don't think that threats are going to get you taken more seriously.

At best, these tactics will sour the relationship with the person you need to be your advocate in the company. Your deal may proceed, but in a hobbled state where it is hard to get anything done based on rapport with your counterpart. And trust me - that person will be looking for an opportunity to have their vengeance . . .

Thursday, September 29, 2005

M&A as E.R.

I was having drinks with a good friend and former corp dev colleague who is disgruntled with managerial expectations that he put in "face time" in the office. It's probably not a big deal, but it seems like dissatisfaction that should be easily cured. I've always told my direct reports that I consider them professionals - I don't care what hours they spend in the office, as long as they get their work done in a high-quality fashion. Sometimes that means a lot of time in the office anyway, but usually if you give a good employee that kind of flexibility you will get very good results.

In any event, after a few more drinks we concluded that a corp dev department could go one step further than my approach: Treat the group similar to the way emergency room doctors work:

Like an ER, corp dev staff are expected to work as hard and as long as necessary when a trauma case/big deal presents.

Like ER docs, corp dev staff can expect to be "on call" for emergencies.

Unlike many ER docs and surgeons, corp dev staff in most companies are also expected to work regular office hours.

Now, there are certainly those who relish their hours in the workplace and enjoy the company of their co-workers. And, of course, those who lead the organization can't expect to escape a good deal of office time. But what about those talented analysts who want more flexibility and work-life balance? They're already committed to being there for any emergency; why not free them up the rest of the time if they want it?

Ground rules would include always being accessible by wireless phone and e-mail, keeping on top of industry reading and being in the office whenever deal work demanded it. There could be months where this wouldn't look any different than regular work, but corp dev work is notoriously cyclical. I'm also not sure it would work at a smaller, high-growth company like mine. But in a larger, mature company, having an explicit policy that staff could be "on call" and away from the office when deal work doesn't demand it could create a great deal of good will and staff loyalty.

Monday, September 26, 2005

Other People's Deals

Like many, I don't have any hesitation in questioning (judging?) the wisdom of other people's deals (see, e.g., my comments on Skype). However, as I was reminded the other day, it's a temptation too easy to fall into when you're managing other corporate development professionals.

When you look at someone else's deals on paper, the less-than-ideal terms glare back at you. You want to pick it apart, point out the problems and limitations, but you've got to take into consideration the compromise and negotiation that got the deal where it is. By all means, you don't settle for less than the best deal you can get in the time available. But I know that when I was starting out I didn't like getting second-guessed on terms I'd considered and settled on, and I'm going to work harder to do the same when I'm peering over someone else's shoulder.

Friday, September 16, 2005


Brief post from Heather's "Marketing and Finance at Microsoft" blog about the value of altruism ("the more you give, the more you get"). This struck a chord, as it echoes a debate I've had with colleagues over the years - what role does altruism play in doing corp dev work? My view is that altruism can be a powerful factor in both business and career success.

By "altruism" in this sense I mean doing things that you technically don't have to that benefit others. While I don't think there's any debate about the value of doing this internally in your company (you should absolutely help out your colleagues), the controversy arises over being altruistic with your trading partners - who are often your competitors. At AT&T Wireless, I dealt with other wireless carriers, large and small. At Clearwire, the cast of trading partners is even larger. At a certain level of abstraction, these trading partners are all competitors, and the instinct can be to do nothing that advantages one's competitors.

I think this attitude is tremendously short-sighted. While you are obviously not going to transfer material shareholder value to your competitors, there are opportunities every day to do things for your trading partners that cost your company little or nothing. For example, in wireless there are always requests to coordinate frequencies at the edges of licenses, do minor frequency swaps, or even just expedite a request for information. While these "favors" may theoretically benefit your competitor, they are firmly in the margins - things that make life easier for your counterparts on the other side; little wins they can establish internally. It's a quid without the pro quo, but it pays off in a major way over time as you establish relationships with your trading partners.

Besides establishing trust and greatly increasing the chances that you will be graced with return altruism when you need it, you get something that can prove even more valuable: A reputation as someone who is practical-minded and can reliably get things done. That can easily be the deciding factor in getting huge deals done down the road. Case in point: Several years ago I did a large deal to acquire cellular operations. Another large carrier was also bidding for these assets. I learned after the fact that the seller had gone with our offer - despite it having a value 5-10% lower than the other carrier - because of our good relations.

Why should good relations matter? We're in a cold-blooded business; shouldn't it just be about the money? Well, in a way it is. If you have good relations with your trading partners and a reputation for reliability, your proposals will be valued more highly than those of your competitors because of the perceived greater likelihood that the deal will actually get done. A lot can happen between initial proposal and closing a deal. If you are perceived as difficult, slow or unreliable, your offers will be discounted accordingly. Altruism (along with being cordial and keeping your word) is a great way to make yourself - and your company - someone your trading partners look forward to dealing with.

Monday, September 12, 2005


EBay's acquisition of Skype for up to $4.1 billion is a great illustration of my point on build vs. buy. How much would it cost eBay to build its own P2P voice platform? (hint: WAAAAAAYY less than $4.1B). Meg Whitman's comments are telling - in referring to Skype's tremendous user growth (for a free service) and name recognition, it seems EBay is afraid of losing out on the first-mover advantage or missing out on what could be a tremendous brand. But EBay's got such an embedded - and loyal - base they could roll out a home-grown solution out very quickly. And while Skype's got a bunch of (non-paying) users and flavor-of-the-month hype, they face deep-pocketed competitors and a rapidly-changing technological and regulatory environment. Smells like a bad case of deal fever over at EBay.

Thursday, September 08, 2005

On Not Keeping Your Head Down

Interesting article from Wharton Business School on gaining competitive advantage by working "performatively" with colleagues (and yes, "performatively" is a word deserving of summary execution). The idea is sound, however, and probably even more meaningful when applied to one's individual workplace success: Benefits abound when you tap the knowledge of your colleagues. Furthermore, in any healthy organization the vast majority of workers "get it" and freely engage in this dialogue with no expectation of "payback."

That seems like a very basic observation, but in many corporate cultures - and for many smart people - interacting with others and asking for help is anathema. I've seen so many people who focus just on getting their heads down and doing the work. What suffers is not only their enjoyment of work, but also their ability to leverage the input of colleagues. Maybe you can avoid drafting a lengthy document from scratch. Perhaps someone else has great tips for dealing with a party you are about to face in negotiations.

Even more importantly, in corporate development you are a bit of an outsider to work that makes the company go. You aren't writing code, manufacturing products or designing networks. However, to do your job at the highest level you need to know as much as possible about how the business works. The more you know, the more informed your recommendations and decisions will be - you'll build better models, negotiate better deals and avoid costly mistakes. The only way to do this is by communicating with your colleagues throughout the business and at every level of the organization.

Tuesday, September 06, 2005


I don't know what I can add to the discussion on Katrina in what has been a pretty business-oriented blog to date. I'm willing to wait to assign blame (although blame most assuredly will assigned) or conclude that the looting and other bad behavior was a widespread as depicted.

That said, there's no question that it was a horrible human tragedy on par with what we're used to seeing in the Third World. What's so shocking is the fact that our response to it seemed, for nearly a week, to also be on par with what we'd see from a Third World government.

The media incessently talks about the need to focus on the living, but look at the repeated details of bodies floating in the flood water, or left lying on sidewalks. Inherent in these repeated details? The horror that our organized and clinical culture could break down to the point where corpses are left in the street for a week. It's hard to imagine a more vivid image of how civic order collapsed in New Orleans. It took a foreign paper (The Independent) to do it, but I finally saw a piece today deal with this issue directly. It's worth a read.

Thursday, September 01, 2005

Build versus Buy

The other day some events at work reminded of the age-old build-versus-buy debate – it’s a topic of always bubbling below the surface in corporate development.  I’ve seen some scholarly papers on the topic (see, e,g, here), but in my view it’s pretty simple:  

  • You build whatever you can

  • You buy only that which:

  • You can’t build (e.g., certain patents, compelling brand names, scarce electromagnetic spectrum)

  • You can’t build fast enough to meet your strategic needs (e.g., big chunks of customers, smaller competitors in a growing segment)

  • You can get cheaper than building (bankruptcy!)

What this means for negotiating deals and valuing companies is that you always have to know whether the acquisition target is something you could (realistically) build.  If you can build it in an acceptable time frame, you will likely have a value gap with the seller.  Why?  For the simple reason that it probably cost the seller about the same to build it, and people who build businesses usually do so to make money.  The seller will want a cash flow multiple, or a certain return on what they’ve invested, or some other magic number.  You’ll be focused on creating NPV compared with what it costs to build.  Outcome – unless the seller is very motivated, you won’t have a deal.  

To my point of quickly eliminating “loser” deals before you waste too much time on them – unless it’s on the discount rack, don’t get bogged down with stuff that your company can just as well build.

Wednesday, August 31, 2005

Sale of AT&T Wireless

Glad to see people are reading – Parkite poses a question about whether the sale of AT&T Wireless to Cingular was really in the shareholders’ interest. It’s a good question, and certainly one that a few shareholders asked when the deal was announced. However, in my opinion it was an outstanding deal for the shareholders. I would also note that I’m not going out on a limb with this sentiment – the merger did, of course, go before the shareholders for a vote, and it was overwhelming approved.

Frustration on the part of long-term holders of AWE stock isn’t hard to understand. The stock went public (as a tracking stock) in April 2000 at $29 a share. It peaked in the $30s a couple of weeks later, and never came remotely close again. By the time AT&T Wireless was spun off from AT&T in July 2001, the stock was trading at $16 a share. Telecom in general (and wireless in particular) crashed further in early 2002, as the capital markets dried up and a wave of bankruptcies ensued. Overlaid on top of all of this was the AWE initiative to replace its TDMA technology with GSM, an expensive and at times customer-frustrating initiative. AWE shares fell below $10 a share in early 2002, and went below $4 a share at one point. For most of 2002 and 2003 the stock bounced between $6 - $8 a share.

When the deal with Cingular was signed in February 2004, the $15 per share price represented a premium of more than 100% over where the stock had traded prior to the rumors of the auction process being underway. More importantly, it was a very full price when viewed through the internal modeling work we did to evaluate the company's options. It’s fair to say that many people were stunned to get a price as high as $15 per share.

For shareholders who had bought at the IPO and held, it obviously represented a significant loss. Despite the timing of the company’s life as a stand-alone company (In hindsight, April 2000 was not the best of time to have an IPO), many felt that with snappier execution and decision-making the company could have done far better, perhaps swallowing Cingular or Voicestream and becoming the dominant U.S. wireless carrier. I wish that could have happened. However, looking at the state of the business at the beginning of 2004, it’s hard to imagine a better outcome than the $15 per share Cingular paid. As business managers and owners (as with our personal investments), we always need to look forward, rather than backward. We have to focus on maximizing shareholder value at that particular moment, not based on what could have been done had the business been run more effectively.

Tuesday, August 30, 2005


Several folks have asked about books on negotiating and corporate development. There’s not a lot out there directly for corporate development, but McKinsey & Cos. Valuation is the bible for the analytical aspect of the work you do in corporate development. With my background, I also found it useful to read a book on financial statements for non-accountants. I can’t remember the exact title, but there’s probably something in the “Dummies” line by now.

There’s a lot of stuff out there on negotiating – books, seminars, even flash cards. It’s a mixed bag. I still like Getting to Yes, which is a classic (and has several sequels), but it still contains a lot of very useful general negotiating advice: Always know your BATNA (best alternative to a negotiated solution) and that of the other side. Focus on interests, not positions. Create solutions. I hope to follow up on these in future posts on negotiations, but Getting to Yes is a great overview on negotiating.

I also greatly enjoyed James Surowiecki’s The Wisdom of Crowds. It’s more about decision making, and arriving at the right or optimal outcome, even when faced with incomplete facts (Surowiecki also writes an excellent semi-monthly economics column in The New Yorker). The book is fascinating, offering all sorts of counter-intuitive examples of how crowds or markets can reach far better decisions than an individual is likely to do (one example: the average of all entries at a country fair “guess-how-much-the-ox-weighs” contest coming within one pound of the correct answer).

Of course, anyone who has sat through a board meeting, strategy session or attempt to make a decision via group consensus will scoff loudly at that assertion as applied to the corporate world. After all, it’s simply too familiar to see decisions made in advance of analysis (which is thereafter prepared to show that the decision is the right one), or decisions made by the senior person and then agreed to by the rest of the group without meaningful discussion or consideration of alternatives. Surowiecki points out that in order to get the benefit of “crowd” decision making in these contexts, the group must be diverse and independent. Not necessarily diverse in the EEOC sense, nor independent in the James Dean sense – just that the group possesses enough diversity of experience and enough independence that its members are willing to speak their minds.

Making the right decision and ensuring it happens can be two different things. Surowiecki also notes that when a decision is made the members must be able to put their passionate arguments aside and fully support the implementation of the decision. Sadly, we’ve all seen the passive-aggressive type who outwardly supports the decision and then does everything possible to subvert it.

Monday, August 29, 2005

Seth Levine & VC Adventure

Thanks for the mention, Seth. I'd been thinking about blogging for a while (okay, a few weeks), but reading Seth's blog is really what convinced me that I should do it. Lots of perspective on what he's doing, what life is like in the VC world, and the occasional off-the-wall observation. I'm not sure I'll ever be as up to speed on blogging tools as Seth is, but I hope I can live up to his example and provide a window into what (in my view, at least) makes corp dev tick.

Friday, August 26, 2005

Internal Relationships

It’s funny, as I gather my thoughts about corporate development, so much of it seems to center around the process of working internally – getting input from the appropriate people, making sure other teams are involved, and getting the deal approved. I’m sure I’m not the only one who feels like the work of negotiating externally with sellers, buyers and potential partners is the easy part of the job!

As I work through my first few months here at a much smaller company, I’m reminded of how important it is to have healthy and productive internal relationships. Not formal command-and-control or even the dreaded “matrix management” – just go-to people at all levels of the organization who can get things done for you. Even with as relatively few HQ people as we have here, I’m having to replace the network I had built before – the brilliant accounting manager who always made sure I took care of working capital adjustments in the deal; the guy in engineering who could always dig up whatever obscure technical info I needed on a moment’s notice; the lawyers with the patience to deal with having an ex-lawyer as a client, and all the others. It takes time to find the right people, and even more time to build trust and camaraderie.

Tuesday, August 23, 2005

More on Objectivity

At AT&T Wireless, all deals had to be approved by a group of senior managers made up of our CEO, COO, CFO and GC. Many other senior managers would also attend these meetings and chime in, particularly if the deal potentially impacted their function (and often even if it didn’t). We in corp dev would typically bring deals to this committee for approval once a term sheet had been finalized with the counterparty but before any discussions on definitive documents. With the committee’s blessing, we would then have full authority to complete the deal, including signing and closing. Only for deals over $100 million was the additional step of board of directors approval required. As one might imagine, these were critical meetings for getting our work done! Obviously I wanted my presentations to shine and my recommendations to be adopted.

The problem is, there can be a natural tendency toward salesmanship in such situations: Accentuate the positive; downplay (or ignore) the negative. Big mistake, as I was fortunate enough to learn – in the very first one of these meetings I attended - by watching someone else get savaged for not paying adequate attention to certain risks in their deal.

To avoid suffering a similar fate, I seized on a strategy that served me well as a lawyer and which, in a modified form, turns out to work even better when presenting to senior management: Disclose all major negatives up front. You can then go on to present the good aspects of your deal, illustrating how they outweigh the negatives, without fear of one of the cannibals in the room ripping in to you for bullshitting them. Sure, someone may press – hard – on some of the issues you’ve raised, but you can argue back even-handedly, without also having to defend your credibility.

If you’ve done your work with senior management before the meeting, you’ll know what the hot button issues are and who in the room you’re going to need to be concerned about. Some deals seem like such slam dunks this hardly seems necessary, but I’d recommend always pre-selling the critical decision makers and presenting the negatives. Meetings like this are blood sport for some senior managers, so you’ve got to be prepared.

Monday, August 22, 2005

Objectivity & Credibility

It’s critical to an investment banker’s credibility that he or she not push deals that aren’t in the client’s best interests. Indeed, the best bankers I’ve worked with will aggressively dissuade their clients from exploring combinations that don’t maximize shareholder value.

Likewise, I’ve found it critical to success in corporate development that one not be perceived as someone who is always pushing to do the next deal. Sure, corp dev folk are paid to do deals, but more importantly, they’re paid to do SMART deals. Again, it comes back to enhancing shareholder value. You must be perceived as someone who prizes shareholder value over all else. You’ve got to be unafraid to tell senior management that a deal under consideration should not be done (of course, if they’re fond of the deal you’ve also got to be exceedingly well-prepared to tell them WHY it should not be done).

In some ways, you've got to be even more objective than those running other functions, whose fights over turf are considered (within limits) healthy behavior. If senior management gets even a whiff that you are pushing a deal that isn't squarely within the shareholders' interest, your credibility is shot. Even a slight blemish on your credibility will make the work of getting internal buy-off on deals very, very hard.

Thursday, August 18, 2005

Deals not Done

There’s an interesting dynamic to doing deals inside a company. Most likely, you’re going to be measured (and rewarded) based on the deals you’ve done. When you tally your achievements at the end of the year, what you hope to find is a litany of deals successfully closed at great valuations, integrations achieved within the allotted time and budget, excess synergies created, thriving joint ventures – you get the idea. What you can’t take credit for is something that’s every bit as important and which in some years will account for the bulk of your time at work – deals that don’t get done.

Probably 80+% of potential deals shouldn’t be done, and to be effective as a corporate development professional you’ve got to have the ability to quickly identify the stinkers and cut them loose before you waste too much time on them. Sometimes you don’t have a choice – if you’re evaluating a major strategic merger or acquisition that senior management is behind, that deal will suck you up in its vortex, and there you’ll toil for months until the wheels fall off. I spent a good chunk of 2002 in such a place. However, on smaller deals that you lead, you must eliminate the non-starters before you’ve invested too much of your time. By all means, take the time to think creatively about whether something can be done. But look very critically at every deal at the earliest stages. Look for reasons to kill the deal – over-rated talent or products; potential integration nightmares; senior management reticence to back a particular deal structure or product area. Scour the financials and treat any forecasts as pure fiction. This is no place for rose-colored glasses.

Tuesday, August 16, 2005

Shareholder Value

If there’s one thing, and one thing only, that should matter in corporate development, it’s the enhancement of shareholder value. Now before I get beat up as some kind of neo-Hobbesian, let me stress that shareholder value is a complicated concept. It’s not, as some narrow-minded types would have it, wringing the last cent of value out of every interaction or transaction. It’s looking at the big picture and determining whether a given decision or course of action enhances or detracts from the overall value of the enterprise.

Now, every company is different, and will typically view itself as being positioned in the market in one of four basic ways: The customer service leader, the technical leader, the price leader or the quality leader (and there ends most of what I know about marketing . . .). This positioning will obviously impact the factors that influence shareholder value, but here are a few universal factors that influence shareholder value:

Positive to Shareholder Value:
Growing revenue and increasing margins
Treating employees well and paying them fairly
Attention to customers
Good media relations

Negative to Shareholder Value:
Suing your competitors (most of the time)
Treating employees as fungible assets to be “squeezed” for efficiency
Creative accounting
Over-reaching defense of trademarks
Many, many mergers

One thing that has always perplexed me about corporate life is how little focus most employees, even at relatively senior levels, give to enhancing shareholder value. I think this is also a problem that grows with the size of the company. If your company has more than $10 billion in annual revenue, ideas (or extra work) that “only” enhance revenue by $1 million or less, or “only” save a couple hundred thousand dollars in expense can get rationalized as not worth the time to work on. I don’t get that. Early in my career, a colleague in the finance group made a comment that has stuck with me: His goal, he explained, was to save the company each year at least 2X the amount of his salary. Often times it can be a matter of simply spending 1-2 hours on something that will save the company $50,000 or more. Is that not time well spent?

At the end of the day, corporate development work doesn’t have a creative or artistic aspect to it that one can fall back on if you’re not focused on shareholder value. So you might as well use your creativity to find ways to make the business hum that much faster.

Friday, August 12, 2005

Corporate Development

When I tell people I do "corporate development" work, I usually get a blank stare. So I lamely have to add, "you know, mergers and acquisitions, that sort of thing. . . " It was easier when I just had to say I was a lawyer, but of course the work wasn't nearly as fun.

I'm sure different companies put slightly different spins on what "corporate development" means, but in my view it's the group with responsibility for ensuring that 1) the company's inorganic growth needs are met, and 2) the value of company assets are maximized, whether in asset sales, spin-offs, major investments or sale of the company itself. Or to put it simply - you buy and sell all the stuff that your purchasing department doesn't deal with.

In my experience, the scope of corporate development has also included interactions with competitors (joint ventures, roaming agreements), development of corporate strategy and resolution of big, nasty problems that no other function seems positioned to solve. I've also seen some companies where the development function also incorporates long-term financial planning of the sort usually found in the CFO's shop.

My purpose in this blog is to develop my thoughts (and hopefully pick up some insights) on the strategy and tactics behind the bread-and-butter corporate development work of buying, selling and making strategic alliances. Much of this stuff - negotiating, building relationships, making good decisions - can also be usefully applied to just about anything in corporate life.

Why Blog?

Why not? The process of auctioning off my former company (AT&T Wireless) and dealing with the year-long effort to close the deal with Cingular and divest assets to meet the needs of the Department of Justice, has crystallized many of my thoughts on good and bad corporate development practices and tactics. Of course, considering what to do with my life post-merger, engaging in an extensive job search, going through numerous interviews and taking a new job has also given me ample opportunity to consider what I like and don't like about corporate development (and the corporate world in general).

I'm hoping this forum will help organize some of these thoughts on corporate development, negotiating tactics, and other corporate fun-and-games. Even if no one else is interested - and I always wondered who reads blogs, until I came across some genuinely enlightening ones - I've found that committing my thoughts to paper (of a fashion) has a powerful benefit in deepening my understanding. I'd also love to hear thoughts from others on their favorite negotiating tips, corporate development practices and amusing deal stories.