David Wanetick
Managing Director
IncreMental Advantage
The contents of this presentation are the property
  of IncreMental Advantage. Reproduction of this
  presentation in whol...
You can get much further
 with a kind word and a gun
 than you can with a kind
 word alone.
      - AL CAPONE
Election of 1912
 Lessons to be learned
   Importance of anchoring the negotiations
   Understand what the other side want...
Costs of Negotiation
 Time
 Information leakage
 Lack of focus at your business
 Concern among employees
 You may be used ...
Background
Job function
Experience
Personality
Time availability
Detect hidden agendas
Confidence
Team size – manage with ...
Map your way to the decision makers
   Internal champions

Sequencing with multiple negotiating parties

Create a scoring ...
Stake-   Pain   Prefer-   Power   Role in
holder          ence              Decision
Realize that negotiations take place anytime your try to
influence your target

   Publish, promote, spread rumors before ...
Don’t look for a fair fight, you must have a compelling
advantage
  Trump Tower

Paint a vision of value
  Fred Smith of F...
Due Diligence
 Know your opponent’s interests
   Give your opponents dilemmas not problems
   Make multiple, similar offer...
Due Diligence – Questions to Ask

   What do you need to achieve?

   What does your opponent need to achieve?

   What ar...
Pressure you will be put under is a function of:

  How long opponent has been with his company?
  How much experience the...
The agenda should comprise the following:
    Who will attend
    The duration of the meeting
    Who will initiate the pr...
Pros
  Tactical flexibility
  Stalking horse – obtaining information / conveying information
  More ideas for reconciliati...
Opening offer
  High statistical correlation between opening offer and closing
  price
  Don’t negotiate against yourself
...
Begin the negotiations with common interests, not
sources of contention
Responding to opening offer
Responding to absurd o...
Concessions management
  Monetary vs. non-monetary
  Reactive devaluation - Don’t give unless asked
  Must be a correspond...
GENTLE CRUNCHES                MODERATE CRUNCHES
We need your help on this.     There’s no way we can accept
That doesn’t ...
AGGRESSIVE CRUNCHES             AGGRESSIVE CRUNCHES
 Yeah. Right.                    Are you sure about your
 Do you want ...
INFLAMMATORY CRUNCHES           NONVERBAL CRUNCHES
 Come back when you’re
 serious.                        Feigned heart a...
ENSUING CRUNCHES                      RESPONSES TO CRUNCHES
That’s a step in the right             Make me an offer.
direc...
Good cop / bad cop

Exploding offers

Limited authority

Power of precedent

Disproportionate power

Threats

Bullying
Make them smaller and weaker
 Laws, regulations, policies, codes of conduct, organizational
 charters or constitutions. Ot...
Consideration of outcomes
  Probability of successful integration
    Include the other side in drafting proposals or cont...
Labeling behavior

Testing understanding and summarizing

Ask questions

Feelings commentary

Avoid argument dilution

Pos...
Don’t assume that the other side represents one unified
voice
  Try to fractionalize the other side
    How are advisors c...
Plant seeds of greed in your opponents mind

Other side must feel your pain – Ultimate Game

Partisan perceptions become s...
Benefits of using e-mail include:
  Convenience when parties are at a distance
  Time to consider one’s next move
     E-m...
The most productive arguments use the future tense

Anticipate your audience’s objections and address them
before your opp...
By giving advance warning of an emotion, you inoculate
your audience from it

To shift people’s point of view, start from ...
If the facts work in your favor, use them. If they don’t (or
you don’t know them), then…

Redefine the terms instead. If t...
Research the people you will meet – e.g. pictures on
their websites

93% of interpersonal communication is non-verbal

Con...
Can’t expect that everyone will be perfectly honest in
negotiations

You shouldn’t lie, but you don’t have to tell the com...
Look prepared

Signal your ability to obtain information

Ask less threatening, indirect questions

Gather information fro...
Verbal Cues

 Infrequent use of “I”, “me”, “mine”
 Greater use of contractions
 Use of shorter statements
 Greater use of ...
Other Cues

 Place objects between themselves and audience,
 disconnect between emotions and expressions
 Higher blink rat...
Use contingency contracts

  Concerns with contingency contracts:

    Contingency contracts are dangerous if the other pa...
Compliance

 Get other side involved in creating the agreement – rather than
 imposing the agreement on to them

 Get infl...
Post-settlement settlements

Postdeal renegotiations

Intradeal renegotiations

Extradeal renegotiations
Advantages
  Good for bridging value gaps
  Good incentive tool
  Tax deferment on compensation

Problems with financial i...
Payments disbursed under earn-outs are not treated as
compensation expense, which is subtracted from
earnings. Instead, th...
Concerns
 Difficult to negotiate

 Calculation is very difficult – no one knows how to make the
 calculations

 Litigation...
Company must be in a growth mode, not appropriate for
asset or turnaround plays

Unknown events – what happens if the acqu...
David Wanetick
         Managing Director
       IncreMental Advantage

dwanetick@incrementaladvantage.com
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negotiating issues_Negotiating transactions [compatibility mode]

  1. 1. David Wanetick Managing Director IncreMental Advantage
  2. 2. The contents of this presentation are the property of IncreMental Advantage. Reproduction of this presentation in whole or in part is prohibited except with the express written consent of IncreMental Advantage.
  3. 3. You can get much further with a kind word and a gun than you can with a kind word alone. - AL CAPONE
  4. 4. Election of 1912 Lessons to be learned Importance of anchoring the negotiations Understand what the other side wants The answer is not always compromise You don’t have to show all of your cards You can’t lie, but you don’t have to tell the complete truth Use time to pressure the other side You don’t always have to meet with the other side
  5. 5. Costs of Negotiation Time Information leakage Lack of focus at your business Concern among employees You may be used to enable the other side to gain leverage Delay Competitors may use delay to damage your business Risk being seduced
  6. 6. Background Job function Experience Personality Time availability Detect hidden agendas Confidence Team size – manage with caucuses
  7. 7. Map your way to the decision makers Internal champions Sequencing with multiple negotiating parties Create a scoring system Set demands as a condition for beginning the negotiations Have an audience Due diligence – align your proposal with their objectives It is better to leak than divulge information Other side must feel your pain – The Ultimate Game
  8. 8. Stake- Pain Prefer- Power Role in holder ence Decision
  9. 9. Realize that negotiations take place anytime your try to influence your target Publish, promote, spread rumors before you begin to negotiate Soon after USAir’s revelation that it was for sale, Robert Crandall, CEO of American Airlines, wrote an open letter to American’s 118,000 employees which stated: …the best way for American to increase its size and reach is by internal growth…not consolidation…So we will not be the first to make a bid for USAir… American was signaling to United not start a bidding war over USAir
  10. 10. Don’t look for a fair fight, you must have a compelling advantage Trump Tower Paint a vision of value Fred Smith of Federal Express Ronald Reagan Let counterparty make independent discovery Start your negotiations with a preplanned exit strategy Otherwise there will be irrational escalation
  11. 11. Due Diligence Know your opponent’s interests Give your opponents dilemmas not problems Make multiple, similar offers Decision rights Know your opponent’s negotiating style Opponent’s tactics and ploys; time and effort Opponent’s bargaining strength Importance of a favorable outcome to your opponent Opponent’s status Opponent’s financial situation Type and size of your opponent’s competitors
  12. 12. Due Diligence – Questions to Ask What do you need to achieve? What does your opponent need to achieve? What are the key issues for your opponent? Their demands provide insight What kind of long-term relationship does your opponent want? What are the barriers to reaching a mutually beneficial agreement?
  13. 13. Pressure you will be put under is a function of: How long opponent has been with his company? How much experience they have? How successful they have been over the course of their employment? How familiar they are with your area? Never underestimate your competitors
  14. 14. The agenda should comprise the following: Who will attend The duration of the meeting Who will initiate the proceedings Issues to be discussed Order in which topics will be discussed ? Time allowed for each topic Issues that should not be part of the negotiation Bring agreements that you create Keep track of the issues and how they get resolved
  15. 15. Pros Tactical flexibility Stalking horse – obtaining information / conveying information More ideas for reconciliation / impasses Expertise Detachment Cons Expense Retaining Compensating Communication Loyalties Use Draft a sympathetic figure to negotiate on your behalf Someone who tries to stop a train by tying himself to the railroad tracks may get less sympathy than someone else who has been tied there against his will.
  16. 16. Opening offer High statistical correlation between opening offer and closing price Don’t negotiate against yourself Might get what you ask for Must appear to be reasonable Allows other side to save face End objectives – signature vs. relationship When you know more about the industry, similar deals, you should make the opening offer and visa versa The Beatles’ A Hard Days Night (7.5% v. 25%) Thomas Edison and his ticker tape machine
  17. 17. Begin the negotiations with common interests, not sources of contention Responding to opening offer Responding to absurd offers Non-Offer Offers Develop and strengthen your walk-away points Sequencing of contentious issues
  18. 18. Concessions management Monetary vs. non-monetary Reactive devaluation - Don’t give unless asked Must be a corresponding concession from the other site Diminishing concessions The Machiavelli Principle Use the word “because” when seeking a negotiation Crunch strategy Agree to whole package Nibble near the close Check against sloppiness – Tiger Woods, dopamine Real money is at stake Increases satisfaction of the other side Sets tone for renegotiation
  19. 19. GENTLE CRUNCHES MODERATE CRUNCHES We need your help on this. There’s no way we can accept That doesn’t work for us. that. What can we do on this? I don’t think you understand. I was looking for a better I just couldn’t bring that back number. to my boss. I’d like you to rethink your I don’t think we’re numbers and get back to us. communicating. That really isn’t what I Perhaps we have a expected. misunderstanding here. You know our situation. I just can’t get there.. Let’s put our heads together Help me out, here. on this. We can’t live with that. There must be something we What kind of a deal can you can do. give me on this?
  20. 20. AGGRESSIVE CRUNCHES AGGRESSIVE CRUNCHES Yeah. Right. Are you sure about your Do you want my business, or math? what? Are we talking about the same How can you say that with a thing? straight face? The decimal point must be in We’re not a charitable the wrong place. At that price, we can’t even organization. talk. Charity begins at home, and You can’t be serious. I’m at work. All kidding aside… Friendship only goes so far. That’s way out of my budget. I thought you came here to Be serious. negotiate. Be realistic. You’re not even close. Does your calculator need a new battery?
  21. 21. INFLAMMATORY CRUNCHES NONVERBAL CRUNCHES Come back when you’re serious. Feigned heart attack or pulling Try again. knife out of chest You’re insulting my Silence intelligence. Not responding to their letter You need a rendezvous with A long caucus reality. Laughter You call that an offer? Shaking head What part of “no” don’t you understand? Would you send in the next salesperson? If I gave you my whole firm, how much would I still owe you?
  22. 22. ENSUING CRUNCHES RESPONSES TO CRUNCHES That’s a step in the right Make me an offer. direction. What are you looking for? We’re making progress. If you were in my shoes, what We appreciate that. What more would you do? can we do? Where do we need to be? You’re getting warmer. Give me some guidance here. That’s still not real attractive to What do you need? us. Do you have a figure in mind? That’s a start. What would it take? What could you live with? What were you thing about? What is it worth to you?
  23. 23. Good cop / bad cop Exploding offers Limited authority Power of precedent Disproportionate power Threats Bullying
  24. 24. Make them smaller and weaker Laws, regulations, policies, codes of conduct, organizational charters or constitutions. Other important standards involve established practices, precedents, expert opinions, market values, principles, policy papers or logic. Reagan v. Gorbachev – Trust but Verify Remove valuable players from their team Conflict out Run out the clock Compare your proposition with their top executives compensation Giant’s allies can be coercers – Malta, Britain, NATO Enemies of Giants – Information Compulsion
  25. 25. Consideration of outcomes Probability of successful integration Include the other side in drafting proposals or contracts Focus on common issues Ranges versus fixed points Issues planning versus sequence planning Frequency of counterproposals Defense / attack spirals Attack the problem not the person
  26. 26. Labeling behavior Testing understanding and summarizing Ask questions Feelings commentary Avoid argument dilution Post negotiation review Make the other side dependent on you by educating them Use surprise
  27. 27. Don’t assume that the other side represents one unified voice Try to fractionalize the other side How are advisors compensated, what do each of the other employees really want “If you can’t convince, confuse.” - President Harry S. Truman Try to delegitimize the other side or the entire issue US - German Reparations Tribunal after WWI
  28. 28. Plant seeds of greed in your opponents mind Other side must feel your pain – Ultimate Game Partisan perceptions become self-fulfilling prophesies Must make the other side understand that they can cherry-pick the best features from the other side
  29. 29. Benefits of using e-mail include: Convenience when parties are at a distance Time to consider one’s next move E-mail gives the slower party a chance to think of and articulate more skillful responses between messages. A clear record of the proposals Ease in conveying large amounts of data to back up proposals Eliminate the chance that our side would get away with some clever bargaining move in the context of a face-to-face meeting or telephone conversation Leveling of the playing field between negotiators with different levels of seniority and experience The power to quickly mobilize large coalitions of like-minded people using group e-mail lists
  30. 30. The most productive arguments use the future tense Anticipate your audience’s objections and address them before your opponent does Oversympathizing makes someone’s mood seem ridiculous without actually ridiculing it It is good to portray the enemy as belittling your cause
  31. 31. By giving advance warning of an emotion, you inoculate your audience from it To shift people’s point of view, start from their position, not yours Start from a specific point to a generalization, not the reverse The last speakers have the persuasive advantage
  32. 32. If the facts work in your favor, use them. If they don’t (or you don’t know them), then… Redefine the terms instead. If that won’t work, accept your opponent’s facts and terms but … Argue that your opponent’s argument is less important than it seems. And even if that isn’t to your advantage… Claim the discussion is irrelevant.
  33. 33. Research the people you will meet – e.g. pictures on their websites 93% of interpersonal communication is non-verbal Congruity of body language is important Behavior mirroring Eye-contact Glasses / watches / pens Factor in norming and outside conditions
  34. 34. Can’t expect that everyone will be perfectly honest in negotiations You shouldn’t lie, but you don’t have to tell the complete truth You can “lie” by telling the truth Soccer players announcing their intentions Appointing Pauli to convey messages There will be more lies through omission Ask “What else should I know?” “What other questions should I ask”
  35. 35. Look prepared Signal your ability to obtain information Ask less threatening, indirect questions Gather information from multiple sources Set a trap Triangulate the truth
  36. 36. Verbal Cues Infrequent use of “I”, “me”, “mine” Greater use of contractions Use of shorter statements Greater use of extraneous information Try to buy time through repetition, ask questioner to repeat the question Use of self-interruption and other attempts to change direction of the discussion
  37. 37. Other Cues Place objects between themselves and audience, disconnect between emotions and expressions Higher blink rate Less eye contact, less wrinkles around the eyes, take up less physical space Change subject to gauge reaction
  38. 38. Use contingency contracts Concerns with contingency contracts: Contingency contracts are dangerous if the other party is more knowledgeable than you A rule of thumb: if you’re going to argue about who won the bet, it’s not worth betting in the first place Make sure your contingency contracts are incentive compatible. That is, the clause you negotiate should provide incentives for the other party to behave in ways that are compatible with the spirit of the your agreement
  39. 39. Compliance Get other side involved in creating the agreement – rather than imposing the agreement on to them Get influences involved – they also help with compliance Memorialize the agreement with plaques, trophies, etc.
  40. 40. Post-settlement settlements Postdeal renegotiations Intradeal renegotiations Extradeal renegotiations
  41. 41. Advantages Good for bridging value gaps Good incentive tool Tax deferment on compensation Problems with financial incentives – other milestones – customer satisfaction, technology development, website visitors, customer acquisition – refer to negotiations book Sometimes acquirers are willing to pay high prices but earn-outs allow them to reduce expectations among other potential acquires
  42. 42. Payments disbursed under earn-outs are not treated as compensation expense, which is subtracted from earnings. Instead, these payments appear as contingent payments on the cash-flow statement and intangible assets on the balance sheet, neither of which drive investor sentiment as much as the earnings numbers on the income statement.
  43. 43. Concerns Difficult to negotiate Calculation is very difficult – no one knows how to make the calculations Litigation often results Potential litigation is a bargaining tool for not doing earnouts The seller could take short-term measures to artificially stimulate sales. For example, the founder may sell a product that provides for free maintenance service for five years. This may stimulate sales but would mean a loss of revenues over the years from zero maintenance revenues. Can instill a have and have not mentality in the company – other executives may need to be compensated
  44. 44. Company must be in a growth mode, not appropriate for asset or turnaround plays Unknown events – what happens if the acquirer gets purchased Difficult to have earn-outs when there is leverage – the lenders will want their money out first, so too will the executives with earn-outs
  45. 45. David Wanetick Managing Director IncreMental Advantage dwanetick@incrementaladvantage.com
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