CHAPTER 5

Performance

We have now arrived at a point on the deal journey where the deal has been planned, there is a strategy and an execution team in place. Now it is time for the deal encounter itself. This chapter demonstrates the fundamental importance of deal performance.

Structuring the Deal

Deals never structure themselves despite all the strategy, planning, and risk analysis in place. There are many issues that need to be resolved and catered for to ensure a deal performance transpires effectively. Matters such as parties, capital structure/providers/raising, financial and other due diligence, commercial, brand value impact, legal issues including agreements, taxation, and operational aspects all influence a deal process.

Timing is also always key. For example, in mergers and acquisitions deals, when potential targets become available, there can be irresistible pressure to buy. But in reality, owners of potential target companies know this and so often prepare their businesses for as inflated a sale price as possible. However, the optimal time to buy is usually determined when value creation can be optimized over a period of time—not when the seller wants it.

Risk mitigation is also critically important in maximizing a deal structure. The key in deal-closing is to maximize the upside opportunity of the deal in question while spreading downside risk of failure. Where a deal involves a merger, acquisition, corporate restructure, or similar strategic integration change, deal-closers need to have clear plans to facilitate the integration expeditiously and maximize economies of scale and efficiencies.

However, there is always the danger that such integrations can become protracted through complexities and resulting deal value and staff morale can decline. So accomplished deal-closers need to always have one eye on structuring the deal for optimal value realization, which can also mean proactively (a) investing in technology, systems, and processes; (b) bringing all key company stakeholders together throughout the process by embedding a deal value mindset within the organization. This involves asking whether targets are being met? If not, why and how can this be corrected?

Rehearse

While planning is critical, deal-closing is not just a theory exercise; practice does help to make perfect. So, in addition to planning all the strategic and tactical aspects of your deal journey, including team members and communication tactics, you should methodically rehearse how you will achieve your objectives and close the deal.

You have now identified and agreed on the primary and secondary issues to craft your final deal proposal. But you need to ensure you are giving yourself the best chance to seal the deal. Just as you would not appear on stage to deliver an important speech without first rehearsing it, you should not enter the closing phase of a deal without testing, substantiating and verifying your arguments, assumptions and general direction—and then doing it again (and again, if necessary!).

Rehearsing your close draws out any last-minute problems, issues, previously unidentified motivations, opinions, and anything else that could, at actual close, derail the deal.

I regularly rehearse how I will seal a deal that I am involved in. In one example, my consulting business was involved in leveraging State Government funding in Australia for a not-for-profit. We produced a contingency and opportunity analysis and then rehearsed all the possible issues that the State Government might need assurance over—and we prepared detailed answers to their questions. We were successful in leveraging the funds.

Be First to Propose

Every deal involves three elements:

Being first to make a proposal is very important in helping you to end up with the deal you want. This is primarily because, as humans, we tend to be heavily influenced by information that is offered to us first (this is sometimes referred to as “anchoring”).

Do not wait for what the other side is prepared to give you. Instead, do your due diligence and then let the other side know what you are prepared to offer them. When you put an issue on the table first through your proposal, it places a line in the sand as the starting point of the discussion.

Always try to go first unless, for some reason, you have had little or no chance to do any due diligence—or somehow you are not, at that opening stage, aware of the true value in the deal and you therefore need to hedge your bets at this point.

If, for whatever reason, the other side goes first, reframe whilst thanking them for their suggestion—for example, “Thanks, but my proposal is ….” When the other side does makes an initial offer, use it as a means to be smart by eliciting information that is inconsistent with their first offer and then presenting it as a compelling alternative position.

As you know, there are three deal zone positions that you need to prepare for: likely, bottom-line, and opening. So, in making your proposal first, consider your likely outcome (what you realistically anticipate to achieve) to guide you in framing your opening position (the best possible position you can give away). Opening as high (or low, if you’re selling) as reasonably possible provides you with the maximum amount of flexibility.

Open as Ambitiously as Possible

There is no formula for what you should open a deal with. Instead you must consider and balance many issues, such as relationships, where your company stands business-wise, who is in the deal room, and so on. In my experience, you will quickly know if you have not been ambitious enough—mainly from the speed at which the other side accepts your first proposal (of which, see more later).

Therefore, be sure you open as ambitiously as possible, though of course be mindful of cultural differences in the way you frame your opening. Also, try to avoid making an opening offer that could confuse or offend your counterpart. Unreasonable offers run the risk of provoking the other side to search for counter-arguments. The more you ask for, generally the more you can expect. Going first and as high as you can, you could end up achieving more than you might otherwise have done: you may make the other side believe they have won something by “bringing you down.”

Be Smart in Framing Your Proposal

In making your proposal, be sure to carefully choose your words. Be as concise as possible and present your case in a logical, comprehensible, sequential way, for example by:

In making your proposal, you are effectively taking the other side on a deal journey with you. This is your chance to weave an image of the future that the other side will find it difficult to resist joining you in. When this is done well, it is replete with synchronicity, serenity, and not a little color. Here deal-closers with acting ambitions can shine.

A good deal requires momentum and you will struggle to get to a logical and satisfactory conclusion if you neglect this fact. It is up to you to patiently, but effectively, sweep the other side along with you in the steps required to reach a mutually satisfactory conclusion. If you experience blockages, awkward moments, or even deadlock in the process, then perhaps you are not maneuvering as adeptly as you could, or should, to ensure good momentum.

Pay careful attention at all times to the progress, words used, ongoing dynamics, and momentum of the deal. To help move the deal discussions forward it can, in certain circumstances, be helpful to be open about not only your needs and wants but also potential trade-offs. Of course, as part of your deal analysis, you should determine how safe it is to open up in this way.

Silence is powerful. I have experienced the other side opening up, and even increasing their proposal on occasion, rather than enduring the continuing wall of an awkward stony silence. I used this tactic to good effect when I was representing the European legal department of a U.S. technology company and charged with on-boarding a law firm to provide pan-European advice. Having received the firm’s proposed engagement terms, I deliberately did not respond in the timeframe they had expected and allowed them to become aware that we were in discussion with an alternative service provider. Rather than wait for my counter-offer, the law firm volunteered a more favorable pricing structure, which we ultimately proceeded with.

In my experience, the following tactics can assist you in making and receiving deal proposals:

A clever tactic to employ is “If you {do x], then I will [do y].” This demonstrates to the other side that you are prepared to help them, but they are going to have to work for that help. Offering a “give” but asking for a “take” in a deal can be a very powerful tool in framing proposals.

Good Communication Is Critical

The “to and fro” and a successful deal is hinged upon both parties getting what they want from it. Good communication is critical for good deal-closing. Letting the other side know what you want and, at the same time, letting the other side be under the impression they can also get what they want in return, is essential. Listening to counter-proposals and being flexible during the entire process are also critically important.

A good deal-closer employs carefully selected words and uses smart gestures. He or she also actively listens to the words used by the other side, while being very alert to their subtle signs, gestures, and other clues. But, be aware that, even with language itself (let alone non-verbal communication), there are vast differences between cultures that give different meanings to certain words such as “reasonable” or “progress.”

Types of Communication

Oxford Dictionaries—Language Matters defines communication as The imparting or exchanging of information by speaking, writing, or using some other medium.

From this definition you can see that there are two major types of communication:

Verbal communication: this includes not only speech, but also forms of writing/uses of symbols and sign language. In turn, there are two major types of verbal communication:

Non-verbal communication: this includes engagement other than by words or symbols, such as through physical gestures and other body language including eye contact and posture.

While useful, this form of communication is not as reliable to interpret as verbal communication and you need to be very careful not to frame your deal strategy purely on this. Body language varies with gender, cultural, and generational differences. For example, we are all aware of the stereotypes of German efficiency, Latino passion, and Asian collectivity. But stereotypes are easily adapted and masked so while an awareness of them is important, just as important is the need for constant calibration and situational assessment.

Finally, there are those elements of body language, which are termed micro-expressions, such as pupil dilation, blushing, muscle spasms, and so on. While often meaningful, these reflexive expressions are probably on the whole left to experts to interpret. That said, taken as a whole, they can add to the overall tapestry of communication.

Human Behavior Trumps Facts

I have rarely been in a deal meeting without seeing human emotions and behaviors rise to the surface. Deal-closing is as much—if not more—about human behavior as it is about the facts, processes, and systems you use or engage in during a deal.

Whether we want to own up to it or not, we are both consciously and subconsciously influenced by what we see and hear in the other person; their appearance, race, age, gender, and so on. All these subconscious biases can, for better or for worse, impact upon how we see the other side and how we behave within the deal.

Human behavior can be challenging at times (aggressive, bullying, or threatening, for example). No matter how well prepared you are, unhelpful behaviors can throw you off track in the heat of the moment. Worse still, I have experienced such behavior being used in an attempt to derail me and/or increase the perception of the other side’s power. Of course, you can attempt to minimize these behaviors by, for example, ignoring them, pre-empting them (by way of advanced planning) or calling them out for what they are.

You also cannot always anticipate unpredictability within the opposing team. For example, even though you think you may be making progress with the other side’s dealmaker or head negotiator, he or she may struggle to sell your proposal to his or her team or wider corporate stakeholders. This may result in a surprising change in emphasis or direction, or even new demands.

But, if you really concentrate on the other side’s behavior, you significantly increase your chances of deal-closing success. Most behavior is observable and therefore being able to join the strands between observable behavior, business needs, and personal wants is a critical skill for expert deal-closing. It is important that you concentrate as fully as you can on how you come across, what you are saying, what you are not saying and your body language. Try using firm language and a deeper voice and look comfortable, composed, and authoritative, whilst being conscious of (and if necessary, addressing) your own movements.

Of course, a deal team needs to ensure that it has the approval of its own organization, which can, particularly in large, multi-layered and siloed organizations, be difficult. Letting the other side know of your organizational mandate is also important from a power perception perspective.

Use Deadlines as a Focusing Tactic

It is wise when you are leading the discussion to set time expectations. Nothing focuses the mind better than a deadline. In addition, deadlines can force people (including you) to agree to things that they normally would not, so deadlines can be a double-edged sword. Nonetheless, time is a key factor in ensuring sufficient preparation and planning for the deal. Be diligent in your use of time—to avoid being pressured.

That said, there is a fine line between managing the course of the deal on the one hand and being seen to want to rush things for your own good. You need to be tactful and situation-aware when setting deadlines.

Dermot Mannion has a distinguished career in aviation and technology, including as former CEO of Aer Lingus, Deputy Chairman of Royal Brunei Airline and President Group Support Services at Emirates. Dermot carries significant experience in the area of deal execution.

Dermot is a strong believer in the critical importance of setting and striving to meet realistic deadlines in negotiations. In his view, once the timetable is in place it is then all about creating and maintaining momentum to ensure the deadlines are achieved. At the same time, Dermot emphasizes that skilled negotiators do need to “keep an eye on” matters away from the negotiating table to ensure all stakeholders are kept regularly appraised of developments. “No one in authority likes to get nasty surprises in the concluding stages of a negotiation” he points out.

This highlights the critical need to ensure that the internal corporate deal approval process is set up and ready to respond when the final transaction documents come to hand. “Executive management committees and Boards of Directors will have their own corporate governance procedures to follow. This takes time and such requirements need to be built into the timeline” says Mr. Mannion.

Incentives Always Appeal

Deal-closing is not an objective, emotionless activity, operating separate from the vagaries of human sentiment, emotion, wants, and needs. That’s why incentives work.

To successfully use incentives to reel in a deal, again you need to know what is important to the other side. To be attractive, the incentive must obviously address the other party’s needs and wants. Asking questions and truly hearing the answers, through active rather than passive listening, is the only way to find out.

But the best way to get what you want in a deal is by offering the other party what satisfies their needs through the value transaction. In my experience, the more value-based incentives you can find to entice the other party, the more interest they are likely have in doing the deal with you. For example, in order to leverage a joint venture agreement in the resources industry in Australia, I used incentives in the form of a last-minute preferential shareholding offer in the new venture to seal the deal. This was what persuaded the other, larger company, to proceed; without the incentive, the deal might not have gone ahead.

It’s Not Over Until It’s Over

Sometimes the deal discussions will grind to a halt for a variety of reasons, intentional or unintentional. This is why getting your planning and preparation for power as right as possible is so important in terms of anticipating as many eventualities as possible. When a deal grinds to a halt, the flow-on implications can be dangerous, including lost or irretrievable time, financial loss, structural impacts, or damaged egos.

Deals can become intentionally blocked, because the other side:

Whatever the case, you must efficiently determine what is causing the blockage and deal with it quickly and comprehensively. When blockages occur, I find it helpful to ask clarifying questions, such as:

I have seen occasions when neither side is willing to move ground from their likely outcome. However, usually a pathway through is possible, but you will need to summon all your skills to save and/or move the deal forward by cleverly, flexibly, and swiftly presenting proposals and solutions to unblock the stalemate. Don’t necessarily expect to get a quick breakthrough but, if you are patient and tactful, you give yourself the best possible chance to eventually find a proposal that will sufficiently resonate with the other side to unblock the impasse.

In some cases, it may be wiser to engage a trusted third party, such as a mediator. Both parties then disclose their respective bottom lines to him or her, with a view to a deal being reached within a zone of possible agreement. Of course, this is not always possible and a walk-away ultimately might be necessary.

Getting a Deal Back on Track

If a deal derails, you can try to get the discussions back on track by changing your deal team, making a new proposal or reframing your existing proposal. Other tactics include altering your deal zone parameters, calling a “cooling off” time-out or escalating the matter to your boss. Be careful before you escalate to your boss as this may suggest to the other side that you perhaps do not have the degree of authority that your originally represented, thereby potentially weakening your bargaining position. It may be better, optics wise, to keep your boss behind the scenes but updated unless or until there is a deadlock requiring a change of input.

If things are going wrong (and believe me they do), it is far preferable to adjourn a deal meeting than to carry on with a deal you know will fail. I often find that the very act of adjournment can itself refocus thinking and provide the parties with an opportunity to get back on track by recalibrating both sides’ assumptions, expectations, and desired outcomes.

Don’t Walk Away Too Early

Don’t forget that just because the deal is not proceeding does not mean you have not done everything possible to finalize it. The other side’s reasons may not be related to your deal-closing abilities. For example, their hands may be tied by circumstances in their own company or even from a macro-economic perspective.

As a very last resort, consider walking away from the deal only if it becomes clear that you are just not going to get anywhere. But you need to be very sure that a deal is not going to happen—in my experience, people throw in the towel too early, only to regret it later.

I made this mistake myself in some choppy negotiations involving a Chinese company. Through a series of misunderstandings, miscommunications, and no doubt cultural barriers, I walked away from a deal that I believed would never happen. With hindsight, I could have been a little more patient and tactful, but even the best deal-closers don’t always get it right. However, an upside is that I am now better able to distinguish between when I need to walk away and when I am allowing my emotions to overrule common-sense.

That said, there are for me some lines that I will simply not cross: being asked to compromise my ethics or to deal below my bottom line. In either case, I always walk away. My advice to you is to do the same.