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
You can get much further
with a kind word and a gun
than you can with a kind
- AL CAPONE
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
Costs of Negotiation
Lack of focus at your business
Concern among employees
You may be used to enable the other side to gain
Competitors may use delay to damage your business
Risk being seduced
Detect hidden agendas
Team size – manage with caucuses
Map your way to the decision makers
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
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 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
Don’t look for a fair fight, you must have a compelling
Paint a vision of value
Fred Smith of Federal Express
Let counterparty make independent discovery
Start your negotiations with a preplanned exit strategy
Otherwise there will be irrational escalation
Know your opponent’s interests
Give your opponents dilemmas not problems
Make multiple, similar offers
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 financial situation
Type and size of your opponent’s competitors
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
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
How familiar they are with your area?
Never underestimate your competitors
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
Stalking horse – obtaining information / conveying information
More ideas for reconciliation / impasses
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.
High statistical correlation between opening offer and closing
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
Begin the negotiations with common interests, not
sources of contention
Responding to opening offer
Responding to absurd offers
Develop and strengthen your walk-away points
Sequencing of contentious issues
Monetary vs. non-monetary
Reactive devaluation - Don’t give unless asked
Must be a corresponding concession from the other site
The Machiavelli Principle
Use the word “because” when seeking a negotiation
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
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?
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
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
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
You call that an offer? Shaking head
What part of “no” don’t you
Would you send in the next
If I gave you my whole firm,
how much would I still owe
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?
Good cop / bad cop
Power of precedent
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
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
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
Testing understanding and summarizing
Avoid argument dilution
Post negotiation review
Make the other side dependent on you by educating them
Don’t assume that the other side represents one unified
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
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
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
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
By giving advance warning of an emotion, you inoculate
your audience from it
To shift people’s point of view, start from their position,
Start from a specific point to a generalization, not the
The last speakers have the persuasive advantage
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.
Research the people you will meet – e.g. pictures on
93% of interpersonal communication is non-verbal
Congruity of body language is important
Glasses / watches / pens
Factor in norming and outside conditions
Can’t expect that everyone will be perfectly honest in
You shouldn’t lie, but you don’t have to tell the complete
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
Signal your ability to obtain information
Ask less threatening, indirect questions
Gather information from multiple sources
Set a trap
Triangulate the truth
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
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
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
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.
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
Sometimes acquirers are willing to pay high prices but
earn-outs allow them to reduce expectations among
other potential acquires
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.
Difficult to negotiate
Calculation is very difficult – no one knows how to make the
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
Can instill a have and have not mentality in the company – other
executives may need to be compensated
Company must be in a growth mode, not appropriate for
asset or turnaround plays
Unknown events – what happens if the acquirer gets
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
A particular slide catching your eye?
Clipping is a handy way to collect important slides you want to go back to later.