Negotiations, whether between individuals, businesses or even countries are nothing more than a process in which concerned parties come to an agreement that serves everyone’s best interests. Instead of one dominating or imposing power over the other, the parties attempt to reach a consensus in which everyone is satisfied.

When preparing to negotiate you need to ask yourself three questions: Why am I negotiating? Who am I negotiating for (myself, my company, my family)? And how much is my ego involved?

These questions will help you establish the importance of the negotiation - what the outcome will affect.

After answering those first three questions, additional ways to assess the situation include:

• Set goals and limits – what are your walk away triggers? You must be able to walk away from the table.
• Win or lose – Make sure you have a plan to deal with the outcome; both near and long term benefits
• Are you prepared to lose/win? What did I lose/win, if anything? If you did lose/win, what will it affect?
  • Long-term, short-term benefits
  • What will happen to the relationship?
• Will your relationship with the other party be intact when the negotiation is over? If not, is that the outcome you want? Could this negotiation come haunt you in the future?
• How do you want to be remembered once the negotiation is complete?

Taking a brief minute to answer these issues will leave you better prepared once you sit down at the table.

Technorati Tags: Acquisition Strategy, acquisitions, business acquisitions, Capstone, David Braun, External Growth, Gretchen Johnson, M&A, M&A News, Mergers and Acquisitions, negotiations

Valuing a for-sale opportunity becomes more challenging during periods of economic and financing uncertainty.
During an economic boom, sellers are often able to obtain top dollar due to increased competition among buyers, with readily available financing options.

However, in today’s market, buyers are more cautious about the businesses they are buying and the amount they are willing to pay. Despite a challenging economic market, most sellers have not adjusted their expectations regarding the value of their businesses. Such misperceptions make negotiating a purchase price much more difficult.

An earnout provides a way to bridge the seller/buyer gap with contingent payments that mitigate risk for buyer and creates incentives for sellers/ management. For example, the targets can be based on meeting certain revenue goals or the development of a product. While not new, earnouts are more frequently used during economic downturns and with small, private company acquisitions.

Earnouts are challenging instruments to structure. Since earnouts can result in litigation among the parties, it is vital that the buyer and seller carefully consider the conditions under which future earnout payments will be made.

Since an earnout is based on future financial performance, both parties should be clear about the method for calculating the performance targets (including accounting methods), how much control over the operations of the business the seller retains during the earnout period (including the amount of capital available to fund the business, who has the ability to hire and fire employees, and how strategic business decisions are made), and seller’s remedies (such as a fixed dollar amount of damages) if the buyer breaches its obligations under the earnout.

While earnouts are not appropriate for all transactions and can be complicated and time consuming to negotiate, earnouts provide an additional tool to consider as either a buyer or seller – particularly in an uncertain and challenging economy.

Technorati Tags: Acquisition Strategy, acquisitions, business acquisitions, Capstone, David Braun, earnouts, External Growth, Gretchen Johnson, Integration, M&A, m-and-a, mergers, Mergers and Acquisitions, valuation

On this blog previously, David discussed some of the issues surrounding the AOL-Time Warner merger.  Given that the ten year anniversary of the merger was recently marked, I wanted to re-visit the ill-fated deal to explore it a little more in-depth.

AOL and Time Warner merged to create the “world’s first Internet-age media and communications company” for an all-stock combined value of $350 billion. The merger announcement stated that the new company “will be uniquely positioned to speed the development of the interactive medium and the growth of all its businesses. It will provide an important new broadband distribution platform for AOL’s interactive services and drive subscriber growth through cross-marketing with Time Warner’s pre-eminent brands”… which doesn’t include the laundry list of growth opportunities captured in the remainder of the announcement covering everything from music to telephony.

Instead of delivering on these ambitious promises, the merger imploded, translating into about $100B in lost shareholder value. The new company was plagued by many issues such as: short-term thinking, bad technology, bungled product development, and a risk-averse culture more prone to imitation than innovation. Most importantly the vision and passion the deal champions Jerry Levin and Steve Case established in 2000 were not effectively translated and executed by their people.

Yes, there were external pressures such as regulators and Wall street that increased merger difficulties – but I believe it all comes back to a clear vision that sets the strategic direction that the rest of the organization can understand and execute against. To that point – AOL’s original vision was “to build a global medium as central to people’s lives as the telephone or television… and even more valuable”. The company accomplished this vision prior to the merger. Eventually they replaced the statement in 2006: “to serve the world’s most engaged community”, which is nondescript and applicable to many businesses.

Recently, Jerry Levin, former CEO of AOL-Time Warner, and Steve Case, co-founder of AOL were on CNBC reflecting on the merger (see the video below). Levin apologized for the merger, “I presided over the worst deal of the century… I’m really very sorry about the pain and suffering and loss this has caused.” Levin and Case’s observations included:

• Leaders need to be compassionate and understanding of the significant tension due to a merger’s disruptive nature and cultural differences
• AOL TW was to be a ‘supermarket’ but instead was a ‘mall’
• Vision is nothing without execution in which people are key
• Too much focus on internal politics and wall street instead of customer needs

Technorati Tags: Acquisition Strategy, acquisitions, AOL, business acquisitions, Capstone, David Braun, External Growth, failed acquisitions, Gretchen Johnson, M&A, M&A News, m-and-a, mergers, Mergers and Acquisitions, Time Warner