Everything has to come to an end, sometime.
–L. Frank Baum, author of The Wizard of Oz
You have now arrived at the all-important finale, having expended a huge amount of time and energy to get to this point. You have strategized, planned, developed and used relationships and networks, built a team, made and received proposals, reconsidered and thrown in a fair amount of psychology, patience, wisdom, and fortitude to boot. The last thing you want to do is let yourself down now. So this chapter looks at last-minute checks and other tactics to use when you reach the deal close.
Check That Nothing Has Been Left Off the Table
At this stage, just as a deal is about to close, I use a brief checklist of questions to make sure there is nothing still to be discussed. Over the course of my career, operating at senior management levels internationally, I have found this checklist invaluable before the parties step into the actual deal closure.
Example Checklist for a Joint Venture
A brief checklist of questions in order to find out whether there is anything still to be discussed.
• Have we left anything out of the Joint Venture deal discussions to date?
• Is there anything that was not raised in the discussions that we should now raise that will impact upon the Joint Venture?
• Are we proceeding with an Incorporated Joint Venture? If not, are we proceeding with an Unincorporated Joint Venture?
• Are the ownership stakes in the Joint Venture equal? If not, what are they?
• Is the profit split in the Joint Venture equal? If not, what is it?
• Are capital contributions required for the Joint Venture? If so, what are they?
• Are one or both parties contributing intellectual property to the Joint Venture? If so, list it.
• Are one or both parties contributing property or equipment to the Joint Venture? If so, list it.
• Are one or both parties contributing contracts to the Joint Venture? If so, list them.
• Will the Joint Venture have a Management Committee? If so, who will it comprise?
• Will the Joint Venture expire after a fixed period of time? If so, what will that period be?
• Is there anything else that we should add to these Joint Venture discussions?
• Are we both happy to now close these Joint Venture discussions?
I have learnt to use closed questions where possible, so that simple “Yes” or “No” answers can be given. For example, a “No” answer to “Have we left anything out of the deal discussions to date?” is an unambiguous agreement to move forward to conclude the deal, while a “Yes” to the same question means there’s still work to be done. The converse applies to “Are you now in a position to close?” If you can get the opposing deal-closer or chief negotiator to confirm that all is on track for a successful deal, then you are well set up to seal the deal.
Clarify Mutual Understanding
Once you have finished the checklist questions, pay attention to your own instincts. Are you happy with where things are heading? Are all the members of your team happy?
Dermot Mannion makes the point that “the key to the successful conclusion of any negotiation is to keep onside all your internal constituencies (represented both inside and outside the deal room).” According to Mr. Mannion “this is achieved by letting all vested interests have their say and then arrive at a collective decision on the way forward.” If internal areas of disagreement emerge, then take “a time out to regroup and resolve.” Mr. Mannion also emphasizes the importance of having on the deal team “people who know their way around the organization and you are capable of resolving any issues which may arise at a departmental level promptly.”
Can you sense any dissent among them? In my experience, there is nothing more toxic than a disaffected member of the opposing side whispering negatives behind the scenes.
Check for mutual understanding on all the key points of the deal. This is where your deal summary (see Chapter 3) is invaluable. Surprising as it may seem, I have seen deals derail at this point when the parties realize that unrecognized differences, no matter how subtle, exist in each other’s understanding of the deal. So, you must try to verify, before you move to close the deal, that you are both about to sign the same deal and that no further adjustments or recalibrations are necessary.
I have found this clarification step particularly important when working with different cultures or languages. For example, in assisting the brokering of an Australian pharmacy chain supply deal into the Chinese market, I found it absolutely vital to keep summarizing each side’s position, summarizing the deal at every stage, and particularly at this pre-close stage. Again, where humans are involved, underestimate at your peril the possibility of misunderstanding.
The Deal Is Not Over When You Shake Hands
As we saw in Chapter 5, it is not over until it is over. Even though you have rehearsed the close and have established the ostensible confirmation of the opposing team, you still need to “cross some Ts” and “dot some Is” in sealing the deal. A lot of people mistakenly think that the deal is over when you shake hands. That is not the case. In my experience, one of the most arduous—and yet important—parts of a deal is summarizing the deal in writing to protect both parties’ interests post-agreement.
Summarize the deal at this point and compare where you have landed with the deal against your likely outcome (hopefully, rather than your bottom line) of your deal zone. If you have fallen short, you have one last chance now to try adjusting the deal parameters, though I have rarely seen this happen at this late stage. If you are successful in reframing the discussion and you achieve positive movement in the deal, then ensure that the other side explicitly agrees that this is their new understanding so as to minimize the possibility of any later conflict.
Then, whatever you have managed to achieve through skilled deal-closing, I strongly encourage you to get the deal memorialized in writing via a memorandum of understanding, letter of intent term sheet, heads of agreement, or some other (preferably, legally-binding) instrument. This should be done straight away before there is any room for second thoughts, or before circumstances change. Sign while the excitement is high and before second-guessing and doubt kicks in.
Even then, I strongly recommend that you future-proof your agreement by inserting performance KPIs, trigger points, service level agreements and regular, formal and informal review points to give yourself an opportunity to unravel the deal (or parts of it) further down the track for any non-delivery, poor performance or other similar failures by the other side. But don’t overdo this—there’s a fine balance here.
This is not the glamorous end of the deal-closing journey, but I have seen last minute problems arise when this part of the journey is rushed. In fact, as a former litigator, I know from first-hand experience that lack of attention to memorializing the deal causes a large number of commercial disputes. This is where it often pays to bring in an expert advisor, usually a lawyer.
Try—at all costs—not to allow the other side to write up the deal memorandum. It is better if you (or your advisors) draft the deal memorandum rather than risk needing to revise a document drafted by the other side’s advisors.
Finally, instead of getting bogged down in dealing with every minor detail, you are better advised to try and pull all points into a more holistic, global conclusion. Make sure the terms of the agreement are concise, clear and as unequivocal as possible. Ensure individuals from both sides are explicitly involved in approving and signing off the final contract. Record in a note that they were present so as to help avoid any future dispute about misguided intention.
Dermot Mannion, has clear views about closing out final issues in a deal discussion:
• Avoid getting bogged down on tricky negotiation points;
• Always focus on the big picture;
• Leave the subject matter experts to resolve complex indemnity provisions;
• Use an iterative process to seek to close out issues “one by one;”
• Each time you “sweep” the document you get closer and closer to “sign off;”
• This serves to build trust and confidence in achieving a positive final outcome; and
• Most importantly, making step by step progress builds momentum.
He also emphasizes the importance of “holding everyone’s feet to the fire until the final wording is agreed”:
• Nothing is agreed until everything is agreed;
• “In principle” agreement is not usually conclusive;
• Keep all the deal team in the room until the deal wording is finalized;
• Once the deal team disperses cracks can arise;
• New and real areas of disagreement often arise in resolving the legal wording; and
• Constant vigilance is required until the deal is fully executed.
Governance and Risk
Good deal-closers and deal-making organizations have in place solid deal governance and risk systems and processes for all stages of deal processes, due diligence procedures and supporting deal frameworks, systems and culture. Such processes could include setting clear activities for each stages of the deal, allowing for more informed decisions about whether or not the deal in question should continue and how.
As Dermot Mannion points out: “deal makers move on and it is critically important to ensure that corporate knowledge of transactions is retained in the business.” Critically this is achieved by:
• Maintaining a central repository of all corporate agreements;
• Ensuring the transaction file contains a concise summary of the transaction;
• Creating a corporate diary of important contractual milestone dates;
• Ensuring the important deadline dates are not missed; and
• Using the corporate risk register to record and monitor transaction risks.
Once again, back to the two blocked technology deals. While I had reached the stage of closing in on mutually satisfactory deals, I noticed that there had not hitherto been great deal of attention spent on future-proofing any possible deals reached.
Have you experienced this?
What did you do?
What did I do?
To memorialize things, I carefully inserted performance KPIs and both formal and informal review points in the deals to cover as many non-delivery, non-performance eventualities as possible.
Agree on the Implementation Plan Prior to Execution
You have done it. Your final proposal has been accepted and the deal has been summarized and accepted. However, despite the natural elation of both parties, this is yet another point in the deal prior to contract signing where I have seen deals fall away or unravel.
You need to agree on the deal implementation plan or the mechanisms for actually implementing the deal. It is really important to do so at this point, as you do not want to set unachievable activity and implementation goals that may result in dispute at a later date.
You also need to be mindful of data storage, record-keeping, management, privacy issues.
Prepare for Divorce: Just in Case
Finally, I tell all my clients to ensure that they incorporate a mediation or arbitration clause in their deal contract—just in case. It is always better to be prepared for the “divorce,” in case it arrives. A simple, uncomplicated, well-drafted dispute resolution clause can—and, in my experience, often does—stave off the potential distraction of misunderstanding and ongoing debate.
Summary
• Check that nothing has been left off the table.
• Clarify mutual understanding.
• The deal is not over when you shake hands.
• Governance and risk.
• Agree on the implementation plan prior to execution.
• Prepare for divorce—just in case.
Dermot Mannion
Tell me about a time where it felt you have achieved your desired outcome only to find an unaddressed issue risked or delayed the conclusion.
Answer:
Well, what tends to happen here is that it is important in negotiations that you not just agree issues in principle with the other side, but you actually get the documentation done, as well. So in other words, in my view, no issue is agreed until not only is it agreed in principle but you actually get the words down into the document. If you do that, section-by-section as you move through the document, you will reduce significantly the risk of any unexpected issues coming up at the end.
Jeff Caselden
Discuss how you have seen performance metrics or KPIs become critical to helping secure a deal?
Answer:
Sure, as we went down the road of recovering this relationship and delivering the product solution we set out to achieve for this customer, we obviously hit a number of hurdles and we had lost significant trust along the way. And at several junctures we had made commitments, which we frankly just ended up not being able to deliver. And it was no shock to think that our customer might not believe further commitments that we made. But one of the ways in which I was able to get them onboard with our final solution was to build in strong performance targets and agreements. These were beyond dates and deadlines, these were hard KPIs, which put our development and our operations teams’ money where our mouth was. So, we ended up getting agreement and backing from our own leadership to stand behind what we were now asserting, and we wouldn’t be able to skirt issues as we previously had.
1. What are some ways you can future proof your deal agreement?
You can insert performance KPIs, trigger points, service level agreements and regular, formal and informal review points to give yourself an opportunity to unravel the deal (or parts of it) further down the track for any non-delivery, poor performance or other similar failures by the other side. But don’t overdo this—there’s a fine balance here.
2. Even though the deal has been summarized and accepted what should you still do besides future-proofing your deal?
You need to agree on the deal implementation plan or the mechanisms for actually implementing the deal. It is really important to do so at this point, as you do not want to set unachievable activity and implementation goals that may result in dispute at a later date.