There was a terrific piece in the Washington Post at the end of last week, detailing AT&T's lobbying strategy and approach to win approval of its $39B acquisition of T-Mobile. It's well worth a read, detailing as it does the combination of hubris and overreach that may have sunk the deal's chances.
The acquisition was a risky bet to begin with, but one takeaway for would-be acquirers must be this: If you're going to tout social benefits (in this case, the creation of 100,000 new jobs) in your lobbying efforts, be prepared to back up your claim with the solidest of solid analysis.
Because if you can't, then the rest of your arguments - and make no mistake, AT&T had several good ones re the benefits of this merger - are going to suffer badly by association. You'll have just handed those opposing your deal the club with which to smash your head in.
And today, AT&T has joined the DOJ in asking for a stay of the antitrust trial it had been so ardently pushing forward. This no doubt foretells the deal being scuttled or significantly re-arranged.
Here's one vote for the former - I'd much rather see AT&T in full-throated competition with Verizon than distracting itself trying to put together a less-than-optimal deal.
Showing posts with label negotiation. Show all posts
Showing posts with label negotiation. Show all posts
Monday, December 12, 2011
Monday, October 17, 2011
The Black Hole of Customer Complaints
The Bizzle writes about the role of corporate counsel in occasionally having to deal with real live customer complaints. I had to chuckle; there is much to recognize there.
When I was GC of a regional wireless company, I was deemed the "black hole" of customer complaints, the place that those too crazy or persistent for even our executive escalation team to handle would be sent. Like the guy who would send 27 page faxes to us every day, copying the regulatory agencies and every government official he could think of. Or the customer who sent in a package containing his bill (crumpled up into a tight little ball), a foot-long dowel and a tube of KY Jelly.
What I found was that - much like the Bizzle's experience - for the vast majority of these complaints it was a matter of listening. Listening, because there was nothing else I could offer. Any complaints amenable to resolution would have been dealt with long before they reached me. So I listened, tried not to argue too much, and told them "no". "No," over and over again. No, we would not fundamentally change our business processes. No, we would not pay them millions of dollars for a perceived slight. No, we would not humbly and abjectly go out of business.
And - most importantly - No, there is no one to escalate to beyond me.
These complaints were stuck beyond the event horizon of my "Office of the General Counsel" black hole. They could not go forward and vent their spleen to our CEO, nor backward to make another run at our customer care staff. All further communication would be to me, and me alone. Eventually, they would exhaust themselves and move on to whatever was next in their lives.
It was a clean process, if not always the best use of a GCs time. It required listening, but never for too long; the judicious use of calendar management and setting expectations that I only had time to talk for so long at a spell. But it was a far better process than having the CEO take these calls, and it provided some comfort that if one of these people had a legitimate claim, it would find the legal department while something short of a lawsuit could still make things right.
Unsurprisingly, this is a big part of my current role. Being in the business of publishing information, ratings and reviews of attorneys, we field a number of complaints from those we profile. This is not about paying customer escalations, but rather all about unhappiness and control from a handful of those we've published information about. Many of those have been interesting conversations, and some have even led to changes in our operations. But the vast bulk of them involve me listening and saying that oh-so-familiar word: "No." And because these are attorneys, I often must follow my "no" with an explanation of why suing us would be a bad idea. I have anecdotes and correspondence from these conversations that would fill a book. But that, readers, will have to wait for another day.
When I was GC of a regional wireless company, I was deemed the "black hole" of customer complaints, the place that those too crazy or persistent for even our executive escalation team to handle would be sent. Like the guy who would send 27 page faxes to us every day, copying the regulatory agencies and every government official he could think of. Or the customer who sent in a package containing his bill (crumpled up into a tight little ball), a foot-long dowel and a tube of KY Jelly.
What I found was that - much like the Bizzle's experience - for the vast majority of these complaints it was a matter of listening. Listening, because there was nothing else I could offer. Any complaints amenable to resolution would have been dealt with long before they reached me. So I listened, tried not to argue too much, and told them "no". "No," over and over again. No, we would not fundamentally change our business processes. No, we would not pay them millions of dollars for a perceived slight. No, we would not humbly and abjectly go out of business.
And - most importantly - No, there is no one to escalate to beyond me.
These complaints were stuck beyond the event horizon of my "Office of the General Counsel" black hole. They could not go forward and vent their spleen to our CEO, nor backward to make another run at our customer care staff. All further communication would be to me, and me alone. Eventually, they would exhaust themselves and move on to whatever was next in their lives.
It was a clean process, if not always the best use of a GCs time. It required listening, but never for too long; the judicious use of calendar management and setting expectations that I only had time to talk for so long at a spell. But it was a far better process than having the CEO take these calls, and it provided some comfort that if one of these people had a legitimate claim, it would find the legal department while something short of a lawsuit could still make things right.
Unsurprisingly, this is a big part of my current role. Being in the business of publishing information, ratings and reviews of attorneys, we field a number of complaints from those we profile. This is not about paying customer escalations, but rather all about unhappiness and control from a handful of those we've published information about. Many of those have been interesting conversations, and some have even led to changes in our operations. But the vast bulk of them involve me listening and saying that oh-so-familiar word: "No." And because these are attorneys, I often must follow my "no" with an explanation of why suing us would be a bad idea. I have anecdotes and correspondence from these conversations that would fill a book. But that, readers, will have to wait for another day.
Sunday, August 07, 2011
Negotiating with Madmen
Very few deals are truly "take it or leave it." And those that are require order-takers, not deal negotiators.
But every now and then, your counterparty to a negotiation will take this nutty "my way or the highway" position. Either because they misperceive their leverage, figure there's no cost in asking for the moon, or are just plain bonkers, they'll refuse to engage in the process of compromise that lies at the heart of every successful deal.
This isn't usually a very effective negotiating tactic. Experienced people will simply take the "highway" option, pack up and walk from the negotiation. And if you didn't really mean to give the ultimatum, and have to go crawling back to get talks going again, well . . . it's pretty obvious what that does to your negotiating leverage.
In order to do so, you've got to have an alternative - another competing deal, or a willingness to simply let a bad deal go by.
And this is what bothered me so much about the "debt limit deal" worked out between the White House and Congress. Obama assumed he was dealing with responsible counterparties, when he reality he had loonies on the other side of the table. Now, maybe the GOP wasn't really ready to let the US slip into default, but they certainly gave the impression of that - and in economic matters, impressions of what a government is capable of doing matter, a lot.
The first "my way or the highway" ultimatum was the GOP insistence that no deal for deficit reduction would involve increasing revenues. This should have been met with a response along the lines of "look - if you guys aren't going to take the business of governing seriously, these negotiations are over. I'm just going to ignore the debt limit and get back to work."
Messaging like that would have sparked outrage on the right of course, but it's a valid position both from a policy perspective (the debt limit conflicts with laws authorizing expenditures) and a strategic one (forcing the Republicans to choose between negotiating in good faith and going to court to force the US into default). But most importantly, it would have clarified the issues and let us know whether a meaningful deal could really be had.
Obama may have calculated that the threat of default was enough to restrain the right, and he may been correct, to a point. The problem is, all he could wring out with that weak piece of leverage was a face-saving mess of a deal that does little to address what's wrong with our economy. And we got it for the cost of undermining confidence in the United States.
It's an object lesson in the merits of sharpening the edges of a deal early on. But to do so, you've got to be willing to walk when the other side starts talking crazy.
But every now and then, your counterparty to a negotiation will take this nutty "my way or the highway" position. Either because they misperceive their leverage, figure there's no cost in asking for the moon, or are just plain bonkers, they'll refuse to engage in the process of compromise that lies at the heart of every successful deal.
This isn't usually a very effective negotiating tactic. Experienced people will simply take the "highway" option, pack up and walk from the negotiation. And if you didn't really mean to give the ultimatum, and have to go crawling back to get talks going again, well . . . it's pretty obvious what that does to your negotiating leverage.
In order to do so, you've got to have an alternative - another competing deal, or a willingness to simply let a bad deal go by.
And this is what bothered me so much about the "debt limit deal" worked out between the White House and Congress. Obama assumed he was dealing with responsible counterparties, when he reality he had loonies on the other side of the table. Now, maybe the GOP wasn't really ready to let the US slip into default, but they certainly gave the impression of that - and in economic matters, impressions of what a government is capable of doing matter, a lot.
The first "my way or the highway" ultimatum was the GOP insistence that no deal for deficit reduction would involve increasing revenues. This should have been met with a response along the lines of "look - if you guys aren't going to take the business of governing seriously, these negotiations are over. I'm just going to ignore the debt limit and get back to work."
Messaging like that would have sparked outrage on the right of course, but it's a valid position both from a policy perspective (the debt limit conflicts with laws authorizing expenditures) and a strategic one (forcing the Republicans to choose between negotiating in good faith and going to court to force the US into default). But most importantly, it would have clarified the issues and let us know whether a meaningful deal could really be had.
Obama may have calculated that the threat of default was enough to restrain the right, and he may been correct, to a point. The problem is, all he could wring out with that weak piece of leverage was a face-saving mess of a deal that does little to address what's wrong with our economy. And we got it for the cost of undermining confidence in the United States.
It's an object lesson in the merits of sharpening the edges of a deal early on. But to do so, you've got to be willing to walk when the other side starts talking crazy.
Friday, July 02, 2010
Deal Deliberations
Fred Wilson has a post up regarding Foursquare's recent funding round, defending the lengthy process taken by the startup. What started as financing discussions turned into acquisition talks, then ultimately returned to financing as Foursquare decided they'd rather grow organically than cash out now.
That's a respectable, even admirable, choice. It's not without risk, but it's good to see a company swing for the fences. And while I have often urged the virtues of speed in getting deals done, I agree with Fred that Foursquare did the right thing in taking their time through this process.
The distinction lies between the time taken to evaluate alternatives and the time taken to button the deal up once the company has made its choice. During the evaluation/auction phase, the risks of waiting are likely to be heavily outweighed by the benefits of seeing things through. That may mean getting to the best acquisition deal, or arriving at the informed decision to move forward alone (or with new financing).
However, it's once that decision has been made that things need to be moved forward with haste. Even if you haven't chosen your partner and an auction still persists, once the decision to do one type of deal or another is in place it's time to race for the finish. Why? Because at this point the risk scenario is flipped. The risks attendant with delay - new competitors emerging, changes in the macro environment, etc. - strongly outweigh any potential benefits of waiting. This doesn't mean not negotiating hard, but it does mean not allowing any delay due to lawyerly handwringing or people not being willing to work around the clock to get the deal papered.
Or as someone else put more memorably: "Only one thing matters in this life: Get them to sign on the line that is dotted."
I don't know how long it took Foursquare to get their financing closed once they'd made the decision to go that route, but if it took more than a couple of weeks that would be cause for criticism.
Not, however, the time they took to reflect on their options and make the choice between selling now and moving forward independently.
That's a respectable, even admirable, choice. It's not without risk, but it's good to see a company swing for the fences. And while I have often urged the virtues of speed in getting deals done, I agree with Fred that Foursquare did the right thing in taking their time through this process.
The distinction lies between the time taken to evaluate alternatives and the time taken to button the deal up once the company has made its choice. During the evaluation/auction phase, the risks of waiting are likely to be heavily outweighed by the benefits of seeing things through. That may mean getting to the best acquisition deal, or arriving at the informed decision to move forward alone (or with new financing).
However, it's once that decision has been made that things need to be moved forward with haste. Even if you haven't chosen your partner and an auction still persists, once the decision to do one type of deal or another is in place it's time to race for the finish. Why? Because at this point the risk scenario is flipped. The risks attendant with delay - new competitors emerging, changes in the macro environment, etc. - strongly outweigh any potential benefits of waiting. This doesn't mean not negotiating hard, but it does mean not allowing any delay due to lawyerly handwringing or people not being willing to work around the clock to get the deal papered.
Or as someone else put more memorably: "Only one thing matters in this life: Get them to sign on the line that is dotted."
I don't know how long it took Foursquare to get their financing closed once they'd made the decision to go that route, but if it took more than a couple of weeks that would be cause for criticism.
Not, however, the time they took to reflect on their options and make the choice between selling now and moving forward independently.
Wednesday, June 16, 2010
The Perils of Hyperbole
First of all, has it really been three months since I've posted here? Between being crazy-busy and writing elsewhere I've neglected Corporate Tool. But fear not - this post from What About Clients? today reminded me of how hyperbole, attractive though it might be, is to be avoided like the plague in both litigation and business.
Dan Hull is absolutely right about the corrosive effect hyperbole has on one's credibility as a litigator; how a single overstatement can undermine an entire legal brief. It's simple, really: Lie about one thing, and people won't believe you about anything.
The corollary in business is this: If you're going to overstate your position, make threats or engage in brinkmanship, you'd better be prepared to back it up. Unless you're really ready to walk from the negotiating table, bring a lawsuit or take some other decisive action, such bombast is likely to seriously backfire. Empty threats are almost never successful.
Dan Hull is absolutely right about the corrosive effect hyperbole has on one's credibility as a litigator; how a single overstatement can undermine an entire legal brief. It's simple, really: Lie about one thing, and people won't believe you about anything.
The corollary in business is this: If you're going to overstate your position, make threats or engage in brinkmanship, you'd better be prepared to back it up. Unless you're really ready to walk from the negotiating table, bring a lawsuit or take some other decisive action, such bombast is likely to seriously backfire. Empty threats are almost never successful.
Thursday, January 07, 2010
Getting Help with the Deal
Good post over at Venture Hacks from Scott Walker - 5 tips on getting deals closed. Here they are, with my thoughts on each:
1. Create a competitive environment. Absolutely. As I wrote about in documenting the sale of AT&T Wireless, a competitive environment drives price and terms in the seller's favor. The only thing better than telling one group that their legal ask is "no longer market" is getting a call from another that they are raising their offer. But - I would emphasize Scott's advice that this effort is one where you must have experienced help. It is a very delicate process to get an auction going and keep it alive, and not a place for any entrepreneur or business manager to learn on the job.
2. Leave your heart at home. Listen, listen, listen - and always check yourself for signs of deal fever.
3. Work your balls off. True for getting most businesses to succeed, and true in the crunch time of getting a deal done. Work 40 hours over a weekend to get a deal done while markets are closed? Spend a week in New York without eating a meal outside of a law firm conference room? You bet - everything needs to fall away when you're focused on getting the deal done.
4. Don't let your investors screw you. Doing diligence is always important - but requires focus. Pay attention to tone and priorities. Don't pay attention to things that don't make a material difference.
5. Get good legal help. God know I've spent a lot of time on this blog dealing with the failings of lawyers, and much of my deal experience has come as a principal rather than the lawyer on the deal. That said, you need to get someone who matches your energy and willingness to work your balls off, AND who knows your business and is aligned with your level of risk aversion. I've seen a lot of good lawyers blow (or nearly blow) deals by wasting time on marginal legal issues. Make sure your lawyer can tell the difference between what matters to you and what can be moved past.
1. Create a competitive environment. Absolutely. As I wrote about in documenting the sale of AT&T Wireless, a competitive environment drives price and terms in the seller's favor. The only thing better than telling one group that their legal ask is "no longer market" is getting a call from another that they are raising their offer. But - I would emphasize Scott's advice that this effort is one where you must have experienced help. It is a very delicate process to get an auction going and keep it alive, and not a place for any entrepreneur or business manager to learn on the job.
2. Leave your heart at home. Listen, listen, listen - and always check yourself for signs of deal fever.
3. Work your balls off. True for getting most businesses to succeed, and true in the crunch time of getting a deal done. Work 40 hours over a weekend to get a deal done while markets are closed? Spend a week in New York without eating a meal outside of a law firm conference room? You bet - everything needs to fall away when you're focused on getting the deal done.
4. Don't let your investors screw you. Doing diligence is always important - but requires focus. Pay attention to tone and priorities. Don't pay attention to things that don't make a material difference.
5. Get good legal help. God know I've spent a lot of time on this blog dealing with the failings of lawyers, and much of my deal experience has come as a principal rather than the lawyer on the deal. That said, you need to get someone who matches your energy and willingness to work your balls off, AND who knows your business and is aligned with your level of risk aversion. I've seen a lot of good lawyers blow (or nearly blow) deals by wasting time on marginal legal issues. Make sure your lawyer can tell the difference between what matters to you and what can be moved past.
Tuesday, June 16, 2009
Why the Iranian Election is Like "Deal Fever"
Dealmakers know the symptoms of "deal fever" - the blowing past objections, rationalizing higher valuations, inflating synergies and discounting diligence items that comes once management has set their eyes on the prize. We try, not always successfully, to avoid it in our own work. Some shops even try to inoculate against deal fever, setting up incentives to kill deals. The idea is to be ever-vigilant against confirmation bias - looking for those things that confirm the direction we want to go, and avoiding/downplaying evidence that runs counter to our bias.
So, Iran. We loathe the sawed-off, anti-Semitic Ahmadinejad. We feel some glimmer of hope that the opposition represents Iranians finally embracing modernity. We imagine that anyone with a brain would vote for progress rather than the incumbent. So we side with the green-clad protesters and call the election a fraud.
Like deal fever, this represents confirmation bias writ large. Leading up to the election, there was little question that Ahmadinejad was going to win at least a plurality. The hope was that he would not win outright, and that in the run-off election Mousavi would have a better shot. However, like deal-hungry CEOs dreaming of industry domination, we've chosen to largely ignore this evidence and cling to anything that confirms our bias - the unsubstantiated rumors of ballot box burning; the images of thronging urban crowds representing the will of a people that remains largely rural, poor and conservative.
Completing a deal often means taking advantage of deal fever on the other side (some might call this selling). We should not be so naive as to believe that the opposition in Iran doesn't realize how its message plays in the West. So while we're right to ask that allegations of election fraud be investigated, and that votes be recounted, we can't accept uncritically any claims made by the opposition. Just as we sometimes have to walk from a soured deal, we sometimes have to accept that the price of democracy is a democratic outcome that we don't agree with.
So, Iran. We loathe the sawed-off, anti-Semitic Ahmadinejad. We feel some glimmer of hope that the opposition represents Iranians finally embracing modernity. We imagine that anyone with a brain would vote for progress rather than the incumbent. So we side with the green-clad protesters and call the election a fraud.
Like deal fever, this represents confirmation bias writ large. Leading up to the election, there was little question that Ahmadinejad was going to win at least a plurality. The hope was that he would not win outright, and that in the run-off election Mousavi would have a better shot. However, like deal-hungry CEOs dreaming of industry domination, we've chosen to largely ignore this evidence and cling to anything that confirms our bias - the unsubstantiated rumors of ballot box burning; the images of thronging urban crowds representing the will of a people that remains largely rural, poor and conservative.
Completing a deal often means taking advantage of deal fever on the other side (some might call this selling). We should not be so naive as to believe that the opposition in Iran doesn't realize how its message plays in the West. So while we're right to ask that allegations of election fraud be investigated, and that votes be recounted, we can't accept uncritically any claims made by the opposition. Just as we sometimes have to walk from a soured deal, we sometimes have to accept that the price of democracy is a democratic outcome that we don't agree with.
Tuesday, May 12, 2009
"Deal Tact"
Terrific post today from John Jenkins at the Deallawyers.com blog titled "A Little 'Deal Tact' Goes a Long Way." John gets right to the heart of those factors I have consistently found key to successful dealmaking, whether you are the lawyer, financial advisor or principal: Acting respectfully to everyone in the process, not engaging in negotiating "games" or pissing matches, and always focusing on moving the deal forward.
My favorite quote:
"I’m not suggesting that deal lawyers should always act like Clark Kent -- possessing a little deal tact doesn’t mean you shouldn’t play hard ball when appropriate. I’m just saying that Conan the Barbarian shouldn’t be our role model either. I mean, if you really believe that what is best in life is “to crush your enemies, to see them driven before you, and to hear the lamentation of their women,” you’d probably be much happier as a litigator anyway."
My favorite quote:
"I’m not suggesting that deal lawyers should always act like Clark Kent -- possessing a little deal tact doesn’t mean you shouldn’t play hard ball when appropriate. I’m just saying that Conan the Barbarian shouldn’t be our role model either. I mean, if you really believe that what is best in life is “to crush your enemies, to see them driven before you, and to hear the lamentation of their women,” you’d probably be much happier as a litigator anyway."
Wednesday, September 03, 2008
Overreaching Contracts
Credit card companies, telecom operators, website publishers and software developers are all familiar with the need for standard, easily-applied agreements that customers sign up to by default when using the service.
While these agreements come in many names and forms ("shrink-wrap" for packaged software, "click-wrap" for downloaded software or software-as-a-service, "End User License Agreement," "Terms of Service," "Terms of Use" or "Customer Service Agreement" for websites or telecom providers) they all have one thing in common - they are contracts of adhesion, meaning the end user is stuck with them if they want to use the service.
There's nothing wrong with this per se - some form of agreement needs to surround these services, and such terms obviously can't be negotiated individually with every user. However, as today's kerfuffle over the terms of service for Google's new Chrome web browser shows, a company's lawyers need to pay attention to what these terms say and whether they are fair in the context of a contract of adhesion.
Why? For starters, while most anything goes in a fully-negotiated agreement, courts will quickly find a contract of adhesion unconscionable if the terms are overreaching. After all, the consumer has no other choice but to vote with their feet (and sometimes they don't even have that choice). The Washington Supreme Court recently decided a case (see Groklaw for a terrific discussion) that offers a classic look at the far reaches of unconscionability - an AT&T customer service agreement that, in addition to requiring arbitration of disputes (usually OK, even in adhesive contracts), also barred class actions, required all proceedings to stay secret, shortened the statute of limitations to bring actions, and limited consumer rights to sue for attorney's fees, while giving AT&T the right to do so (this last point wouldn't fly even in a fully negotiated contract in many states, including CA and WA).
While the Google lawyers apparently were just a little sloppy in applying terms from other services to Chrome, AT&T's lawyers must have just felt compelled to make their terms as one-sided as possible.
The problem is that this kind of overreaching has its costs. If you're AT&T, the only terms above that really make much difference are the arbitration clause and the class action waiver. The rest of the stuff is noise. However, it's so blatantly one-sided that a court couldn't help but trash all of these clauses; indeed, AT&T is lucky the entire agreement wasn't stuffed.
What would have happened if they had kept the agreement scrupulously fair on the procedural side but had retained the important limitations (arbitration and class action waiver)? I say there's a fair chance the court would have upheld their agreement. Instead, their eagerness to craft a lopsided agreement cost them what they really cared about. Nitwits.
While these agreements come in many names and forms ("shrink-wrap" for packaged software, "click-wrap" for downloaded software or software-as-a-service, "End User License Agreement," "Terms of Service," "Terms of Use" or "Customer Service Agreement" for websites or telecom providers) they all have one thing in common - they are contracts of adhesion, meaning the end user is stuck with them if they want to use the service.
There's nothing wrong with this per se - some form of agreement needs to surround these services, and such terms obviously can't be negotiated individually with every user. However, as today's kerfuffle over the terms of service for Google's new Chrome web browser shows, a company's lawyers need to pay attention to what these terms say and whether they are fair in the context of a contract of adhesion.
Why? For starters, while most anything goes in a fully-negotiated agreement, courts will quickly find a contract of adhesion unconscionable if the terms are overreaching. After all, the consumer has no other choice but to vote with their feet (and sometimes they don't even have that choice). The Washington Supreme Court recently decided a case (see Groklaw for a terrific discussion) that offers a classic look at the far reaches of unconscionability - an AT&T customer service agreement that, in addition to requiring arbitration of disputes (usually OK, even in adhesive contracts), also barred class actions, required all proceedings to stay secret, shortened the statute of limitations to bring actions, and limited consumer rights to sue for attorney's fees, while giving AT&T the right to do so (this last point wouldn't fly even in a fully negotiated contract in many states, including CA and WA).
While the Google lawyers apparently were just a little sloppy in applying terms from other services to Chrome, AT&T's lawyers must have just felt compelled to make their terms as one-sided as possible.
The problem is that this kind of overreaching has its costs. If you're AT&T, the only terms above that really make much difference are the arbitration clause and the class action waiver. The rest of the stuff is noise. However, it's so blatantly one-sided that a court couldn't help but trash all of these clauses; indeed, AT&T is lucky the entire agreement wasn't stuffed.
What would have happened if they had kept the agreement scrupulously fair on the procedural side but had retained the important limitations (arbitration and class action waiver)? I say there's a fair chance the court would have upheld their agreement. Instead, their eagerness to craft a lopsided agreement cost them what they really cared about. Nitwits.
Thursday, August 09, 2007
More on MAC Clauses
I've posted before about MACs (material adverse change clauses; also called MAE - material adverse effect - clauses), particularly around the use of a MAC by Johnson & Johnson in trying to negotiate a lower price for Guidant. As we saw there, exercising a MAC is not only the M&A equivalent of nuclear war, it also can lead to unforeseen effects like an ultimately HIGHER price for the target company.
For those interested in learning more about the arcana behind the legal dimensions of MACs and why they are so hard to exercise, the M&A Law Prof Blog has an excellent post on that very subject.
For those interested in learning more about the arcana behind the legal dimensions of MACs and why they are so hard to exercise, the M&A Law Prof Blog has an excellent post on that very subject.
Monday, June 04, 2007
Counsel - Friend or Foe?
Beyond considerations of competence, how much does your choice of deal counsel matter? For larger companies, what about your internal counsel – are they helping or hurting your cause? As I’ve harped on before, there’s a cost to having your company viewed as being hard to deal with. It’s great to be known as a tough negotiator, but you never want to cross the line to the corporate equivalent of “unreasonable asshole.”
In fact, the biggest problem I’ve encountered isn’t overly-hard negotiating, but rather being a difficult pain in the ass over things that don’t really matter. Very little in corporate law is black and white – it is almost always a balancing of risks and opportunities. When it comes to your deal, a good lawyer will pay a lot more attention to remote risks that carry major potential consequences than to those risks that are likelier but would create only minor problems. Beware those lawyers who can’t tell the difference. If you find yourself arguing more with your own attorney than with the other side, that’s a sign you’ve got a problem.
In fact, the biggest problem I’ve encountered isn’t overly-hard negotiating, but rather being a difficult pain in the ass over things that don’t really matter. Very little in corporate law is black and white – it is almost always a balancing of risks and opportunities. When it comes to your deal, a good lawyer will pay a lot more attention to remote risks that carry major potential consequences than to those risks that are likelier but would create only minor problems. Beware those lawyers who can’t tell the difference. If you find yourself arguing more with your own attorney than with the other side, that’s a sign you’ve got a problem.
Thursday, May 17, 2007
Quit Your Yapping
Here's my latest piece in Corporate Dealmaker magazine; if anything, I went light on my aversion to yapping in the workplace. I've got nothing against sports-related banter or lurid office gossip, but windbag-itis gets under my skin. Perhaps the prevalence of e-mail has made some feel the need to squeeze more out of every opportunity to talk (although their e-mail messages typically also display this tendency). Besides being annoying, this habit is ruinous when trying to get things accomplished or negotiate effectively.
Listen effectively and talk sparingly. As my favorite Southern rock band (the Drive-By Truckers) says, "just because I don't run my mouth doesn't mean I got nothin' to say."
Listen effectively and talk sparingly. As my favorite Southern rock band (the Drive-By Truckers) says, "just because I don't run my mouth doesn't mean I got nothin' to say."
Friday, February 09, 2007
Negotiating Tactics
Besides the stuff on building a corporate development department, this last issue of Corporate Dealmaker also has a piece on negotiations that stresses the importance of preparing for big negotiating sessions and focusing on structural/relationship issues rather than tactics. The acticle includes a great paraphrased quote from Marty Lipton (long-term readers will know I've spent my share of late evenings at his firm): "You can get the price up 2% by at-the-table tactics; by bringing in other credible buyers you can bring the price up by 50%."
I've got little use for negotiating tactics, and I'd take this one further: That 2% opportunity is offset by an increased risk that you'll crater the deal with juvenile, offensive or misdirected tactics. Spend the time figuring out what the other side needs to get. Make sure your own objectives aren't muddled. Then go to the negotiating table as yourself - you won't need to play any games.
I've got little use for negotiating tactics, and I'd take this one further: That 2% opportunity is offset by an increased risk that you'll crater the deal with juvenile, offensive or misdirected tactics. Spend the time figuring out what the other side needs to get. Make sure your own objectives aren't muddled. Then go to the negotiating table as yourself - you won't need to play any games.
Thursday, September 21, 2006
Facebook - Yahoo
Facebook is reportedly close to selling itself to Yahoo for about $1B. Although this is less than the $2B valuation Facebook was crowing about a few months back, it seems a shockingly high valuation for a property that could be reduced to irrelevancy by MySpace or whatever the next big thing in social networking turns out to be.
It's truism in dealmaking that once you've decided you want to do the deal, you need to get the ink on paper as quickly as possible. Until that happens, too many things outside of your control can cause the deal to fall apart. You'd think this concern would ring especially true for a company like Facebook, whose potential competitors have no barriers to entry and whose popularity is dependent upon the fickle tastes of people under the age of 25. Yet the WSJ reports that Facebook founder Mark Zuckerberg couldn't even be bothered to take phone calls over the weekend as negotiations wore on, due to his girlfriend being in town. Others think the company should take its time, hire bankers and get an auction going.
There are times to stretch things out, and perhaps the people at Facebook still think $2B (or close to it) is an attainable goal. It isn't. If they get an auction going they may find little interest. Now isn't the time to worry about leaving a few dollars on the table - I'd like to see the young Mr. Zuckerberg take the life-changing $1B deal rather than risk holding out for more.
It's truism in dealmaking that once you've decided you want to do the deal, you need to get the ink on paper as quickly as possible. Until that happens, too many things outside of your control can cause the deal to fall apart. You'd think this concern would ring especially true for a company like Facebook, whose potential competitors have no barriers to entry and whose popularity is dependent upon the fickle tastes of people under the age of 25. Yet the WSJ reports that Facebook founder Mark Zuckerberg couldn't even be bothered to take phone calls over the weekend as negotiations wore on, due to his girlfriend being in town. Others think the company should take its time, hire bankers and get an auction going.
There are times to stretch things out, and perhaps the people at Facebook still think $2B (or close to it) is an attainable goal. It isn't. If they get an auction going they may find little interest. Now isn't the time to worry about leaving a few dollars on the table - I'd like to see the young Mr. Zuckerberg take the life-changing $1B deal rather than risk holding out for more.
Wednesday, June 21, 2006
First Draft Agreements
As a reformed lawyer, I may be more sensitive to how contracts are drafted than some other deal guys. However, a conversation with a former colleague reminded me of a particularly annoying tactic some folks use when sending the initial draft of a definitive agreement - the one-sided, overreaching first draft. It's not something you see every day, but still far too often.
I'm not talking about terms that need to be unilateral or lopsided because of the parties' differing roles, or even terms that are being aggressively negotiated. No, these agreements are laced with terms that favor the drafting party beyond any measure of reason.
Some claim that it makes sense to send over a lopsided contract because (a) the terms may stick and (b) it gives you terms to negotiate back from. I don't find the first point compelling, and the second represents a rather juvenile outlook on negotiating. Sure, lopsided contracts will occasionally work with unsophisticated parties or those you have loads of leverage over. However, in the vast majority of cases they will:
- Piss off your counterparty, harming any useful rapport you may have established
- Make your counterparty dig deeper into the agreement to look for all the other ways you're trying to screw them
- Waste a lot of time as the agreement gets negotiated back to where it should have been in the initial draft
End result: You're back in the same place you would have been had you sent a fairly-written contract, at substantial net expense in time, fees and credibility. You may even lose the deal because of the added delay or trust issues created by your draft.
I'm not talking about terms that need to be unilateral or lopsided because of the parties' differing roles, or even terms that are being aggressively negotiated. No, these agreements are laced with terms that favor the drafting party beyond any measure of reason.
Some claim that it makes sense to send over a lopsided contract because (a) the terms may stick and (b) it gives you terms to negotiate back from. I don't find the first point compelling, and the second represents a rather juvenile outlook on negotiating. Sure, lopsided contracts will occasionally work with unsophisticated parties or those you have loads of leverage over. However, in the vast majority of cases they will:
- Piss off your counterparty, harming any useful rapport you may have established
- Make your counterparty dig deeper into the agreement to look for all the other ways you're trying to screw them
- Waste a lot of time as the agreement gets negotiated back to where it should have been in the initial draft
End result: You're back in the same place you would have been had you sent a fairly-written contract, at substantial net expense in time, fees and credibility. You may even lose the deal because of the added delay or trust issues created by your draft.
Monday, June 12, 2006
Pissing Matches
I spent the first few years after law school as a litigation attorney in a small firm. I learned a lot, and worked with some great folks, several of whom are still good friends. Despite the long time (and career changes) since then, stories like this remind me of what I hated most about litigation - the petty bickering over meaningless crap.
In a negotiation, you can usually find ways to rise above this stuff. In a lawsuit, you may be trapped by the obstinacy of your opposing counsel. What's really amazing here is that both parties to the litigation are companies (OK, insurance companies, but still). You'd think the litigation managers would be wondering why they're getting billed for motions to be filed over such nonsense.
In a negotiation, you can usually find ways to rise above this stuff. In a lawsuit, you may be trapped by the obstinacy of your opposing counsel. What's really amazing here is that both parties to the litigation are companies (OK, insurance companies, but still). You'd think the litigation managers would be wondering why they're getting billed for motions to be filed over such nonsense.
Friday, May 26, 2006
More on Kimonos
My antipathy to the phrase "open the kimono" can be traced back to when I first heard it, about 10 years ago. I had recently moved to an in-house legal position and I was meeting with Lucent - recently spun out of AT&T - to try and resolve a commercial dispute that was teetering toward litigation. I don't even recall the particulars, but I vividly remember the counsel for Lucent, a humorless, pinched-face fellow in his mid-50's, saying he was "going to open the kimono." Yes, he was referring to Lucent's confidential data, but the mental image it created was most unpleasant.
Wednesday, March 29, 2006
Dealmaking Balance
Interesting comment on dealmaking, sadly posted anonymously, which I'll quote in part:
Amen, brother! I'm probably on the aggressive side when it comes to dealmaking - when I see value, I want to get something done, and fast. Few things are as frustrating as dealing with counterparties who are bogged down by bureaucracy or fear. But - inside your organization, deal advocacy has to be positioned correctly. It's great to be the guy who focuses on shareholder value and zealously pursues deals that enhance such value, while being up front about the risks and challenges. It's not so good to be the "deal cheerleader" on every potential deal that comes in the door, and gloss over or omit the messy bits.
As for opening moves, no question they serve you well as long as they are reasonable. I always like making the opening offer. Although it involves more uncertainty, over time I believe making the opening offer yields better results by setting the stage for the deal and allowing me to push the timing and process for getting the deal done. However, in my experience playing the tough guy and making an outrageous opening proposal is worse than not making a proposal at all. At best, the other party will treat you as if you didn't even make a proposal. At worst, you'll really need to do the deal, and you'll have to waffle your way to a reasonable position, your credibility shot to hell. There's just no percentage in doing that.
Good deal making requires balance. In my opinion, the biggest hurdle to getting deals done is either a tendency to be overly conservative or too much machismo.
Point 1) . . . far too often apathy and professional butt covering lead to missed opportunities.
Pont 2) . . . we should always strive to make the appropriate opening move . . . making the opening move is often the most difficult part of doing deals but being a tough SOB is not the same thing as being a good deal maker.
Amen, brother! I'm probably on the aggressive side when it comes to dealmaking - when I see value, I want to get something done, and fast. Few things are as frustrating as dealing with counterparties who are bogged down by bureaucracy or fear. But - inside your organization, deal advocacy has to be positioned correctly. It's great to be the guy who focuses on shareholder value and zealously pursues deals that enhance such value, while being up front about the risks and challenges. It's not so good to be the "deal cheerleader" on every potential deal that comes in the door, and gloss over or omit the messy bits.
As for opening moves, no question they serve you well as long as they are reasonable. I always like making the opening offer. Although it involves more uncertainty, over time I believe making the opening offer yields better results by setting the stage for the deal and allowing me to push the timing and process for getting the deal done. However, in my experience playing the tough guy and making an outrageous opening proposal is worse than not making a proposal at all. At best, the other party will treat you as if you didn't even make a proposal. At worst, you'll really need to do the deal, and you'll have to waffle your way to a reasonable position, your credibility shot to hell. There's just no percentage in doing that.
Wednesday, March 01, 2006
Rights of First Refusal - Bad for the Holder?
Intriguing article from Harvard Business School regarding rights of first refusal (or ROFRs as we corporate tools call them). For those who don't typically deal with ROFRs, they feature prominently in leases, joint ventures, distribution deals, etc. The central thesis of the article is that ROFRs can run to the detriment of the holder.
Huh? Aren't you always better off having a ROFR than not having one? Well, yeah, you are, except that not all ROFRs are created equally. A typical ROFR allows the holder to always move last. I don't think there's any debate that such a right is good to have. The authors, however, focus on what they call "Before and After" ROFRs, which allow the asset holder to set a price ceiling beyond which the asset can be transferred without being subject to the ROFR. While an arrangement like this is clearly inferior to a straightforward ROFR, it's not inherently bad - it won't always work against the holder, and at worst the holder is in the same place they'd be if they didn't have the ROFR.
The bigger point, however, is that you've got to sweat the details in your deals. You can't glaze over when you see the title header for "Right of First Refusal" (or Termination, or Indemnity, or Dispute Resolution, etc . . .). You've got to think through how these provisions will work mechanically if ever exercised, and make sure you're happy with the process. These details are often left to the lawyers; that can be a costly mistake.
Huh? Aren't you always better off having a ROFR than not having one? Well, yeah, you are, except that not all ROFRs are created equally. A typical ROFR allows the holder to always move last. I don't think there's any debate that such a right is good to have. The authors, however, focus on what they call "Before and After" ROFRs, which allow the asset holder to set a price ceiling beyond which the asset can be transferred without being subject to the ROFR. While an arrangement like this is clearly inferior to a straightforward ROFR, it's not inherently bad - it won't always work against the holder, and at worst the holder is in the same place they'd be if they didn't have the ROFR.
The bigger point, however, is that you've got to sweat the details in your deals. You can't glaze over when you see the title header for "Right of First Refusal" (or Termination, or Indemnity, or Dispute Resolution, etc . . .). You've got to think through how these provisions will work mechanically if ever exercised, and make sure you're happy with the process. These details are often left to the lawyers; that can be a costly mistake.
Thursday, January 26, 2006
Perfection - Enemy of the Good
So - no sooner linked than picked upon, Lorne. I wouldn't be quite so charitable toward Steve Jobs' carrot juice tantrum. One person's quest for perfection is another person's nit-picking idiosyncrasy. Wouldn't orange juice have been OK? The behavior described veers perilously close to that of prima donna performers who must have all the brown M&M's removed from the bowl in the green room, and other such nonsense.
There are cases for perfection, and Jobs has certainly harnessed it to great advantage in molding Apple's design aesthetic. There's also no question that it's better to delay product launches to get them right than risk negative customer experiences by launching too early.
On the other hand, and particularly in fast-moving industries and situations, the quest for perfection can doom you with delay. Wait to launch your product until it is absolutely perfect, and you may find a competitor has already seized the advantage and market share with an inferior - but good enough - product. Try to draft the perfect contract and your customers will get frustrated and go elsewhere. And in the world of corp dev, try to negotiate the perfect deal and you won't get it done. The ideal of perfection must be balanced against considerations of time, cost and impact on other elements of the project. Getting it "as right as possible" within these contraints is key.
There are cases for perfection, and Jobs has certainly harnessed it to great advantage in molding Apple's design aesthetic. There's also no question that it's better to delay product launches to get them right than risk negative customer experiences by launching too early.
On the other hand, and particularly in fast-moving industries and situations, the quest for perfection can doom you with delay. Wait to launch your product until it is absolutely perfect, and you may find a competitor has already seized the advantage and market share with an inferior - but good enough - product. Try to draft the perfect contract and your customers will get frustrated and go elsewhere. And in the world of corp dev, try to negotiate the perfect deal and you won't get it done. The ideal of perfection must be balanced against considerations of time, cost and impact on other elements of the project. Getting it "as right as possible" within these contraints is key.
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