Value based Negotiation of Cross Border Deal
I have had the privilege of working on quite a few Cross Border deals (Strategic Alliance/ Joint Venture/ Equity Investment) with partners from Continental Europe, UK, USA and Asia, some of whom are leaders in their field of Business. While working on these transactions, I have attempted to apply the values I have acquired over the last few decades. First and foremost, we get too much engaged on hard data and transaction driven instead of focusing on softer aspects or relationship orientation. I have observed that value based negotiations have always resulted in a win-win for all stakeholders irrespective of the fact whether it was entering into a partnership, or disengaging from a partnership.
Here is a summary of my learnings of creating a win-win:
1: Alignment of Values, Aspirations and Culture fit: Before getting into serious discussions it is important to understand each other’s value system, philosophy of partnership. Alignment of values and cultural fit is the foundation of any partnership. This can be achieved through multiple interactions with the decision maker and different individuals in the two institutions. During these interactions, one will also be able to assess the aspirations and the desire for partnership.
While the partner may have a good understanding of each other’s culture, economy, environments and the company but it is good to share one’s perspective on these aspects. Further, talking about strengths of the Partners, Organization, synergies, business systems, decision making process etc. adds to the understanding.
A deeper understanding of each other’s behavior, values, and philosophy of doing business help in expediting closure. Once rapport is built with the partner, it is extremely important to start believing as if the partnership already exists, this leads to trust and respect for each other.
Just a word of caution, while it may sound trivial but one should be aware of the language issues, the tone, the body language as different cultures have different interpretations of the same action.
2: Define the Boundary Conditions and Economics: It is important to have a frank discussion upfront to ensure alignment on goal congruence, key drivers of entering into a partnership, role and decision rights of each of the partners, economic expectations, and appetite for risk. These discussions help in defining the boundary conditions. Sometimes, one can be rigid with respect to a few walks away positions but one needs to be flexible and open in redefining the boundary conditions as a result of a deeper understanding of each other’s point of view is based on multiple discussions.
It is extremely important to record this understanding to be on the same page and this document must have a sign off from the decision makers of both the partners, Both partners should start committing significant time, efforts and resources once this high-level understanding is reached. The alignment of incentives will ensure that the actions and behaviors of both sides are focused on maximizing business value and benefits to all the stakeholders. It is important to define the terms of exit even before a partnership has fructified as psychologically a clearly defined exit mechanism strengthens and increases the longevity of the partnership, while this is hotly debated issue but needs to be addressed upfront.
3: Think Win-Win for long term sustenance of partnership: There is always a give and take during the discussions but all negotiations must end up with a feeling of win-win for both partners, this is contrary to the belief that there is always a win-lose, but in my personal experience in value-based transparent negotiations, it is always a win-win.
While both partners may want to negotiate from the position of strength but there are situations where it may not be so. Even after identifying the weakness of the partner it is important , not to try and squeeze the partner and one should leave something for him on the table to leave a feeling of win -win , this ensures long term sustenance of the partnership.
4: Be Fair and Transparent: As we start with the mindset that we are already partners it is important to be fair and transparent. It may defy the conventional wisdom of opening up the cards too soon but in my personal view, we need to recognize that another party is as smart or even smarter than us. Therefore there is no point in unnecessarily trying to fool the other side or act smart as most of the times it won’t work. In
5: Work with Solution mindset and focus on Deal closure: In a dynamic and ever-changing world with multiple moving parts, one will find many surprises in this journey. We might hit roadblocks in the process of negotiation, but perseverance and positive mindset pay off in the end. We need to believe in ourselves and believe in the fact everything happens for the good. Positive mindset attracts positive energy and finding solutions becomes easy and all things start to fall into place automatically.
It is advisable to resolve these deadlocks in face to face meetings, even if it means spending extra time, effort, and cost. Interactions over phone or video conference or by mail are more likely to complicate the issues. It is important to enjoy this journey and the process of finding solutions. One can find out of the box solutions provided one is a good listener and is open to listening to the views of non-experts including people who are much junior and younger in age.
People with the deal closure mindset trade “Certainty of close” with economic consideration.
6: Role of Negotiator is very critical: The Negotiator must have the trust and respect of the Decision Makers. The negotiator should buy into the rationale of the partnership, not have any personal agenda and should negotiate without any fear of loss of face. The Negotiator must come to the meetings with the intent to close and make progress during discussions. The Negotiator must be empowered to take decisions on the spot and must create a sense of urgency to close the deal. If the process is dragged than people lose patience and deal fatigue sets in. The negotiator has to play another critical role in managing the expectation of all the key stakeholders which is amongst the most challenging task. Lastly, the negotiator must not let his ego come in the process of negotiation and should continue to focus on the agenda of closing the deal.
In summary, the key traits of a negotiator are, humility, being energetic, effective expectations
7: Preparedness for all Regulatory Compliances and complying with the needs of third parties involved with the transaction: Most of the times we are just focused on the negotiations amongst the partners. In order to ensure timely closure of the transaction, it is important that we should be well prepared and have a clear understanding of the issues and challenges with regards to regulatory and third party compliances/actions. In case of any doubt, one should get firsthand feedback from regulators directly. Never go by the past experience as the Regulators may be open to support a transaction and make exceptions if it is in the interest of all stakeholders.
8: Follow a step by step process to close the deal: It is always a good idea to follow a two-step process for finalizing the Agreement. The first step is to agree on a term sheet / MOU which defines the key terms and then go for a full-fledged shareholder agreement.
9: Closely Monitor the Process: Communication across the team should be seamless and the entire team should be on-boarded. When the deadlines approach, it helps to create a sense of urgency across the team so that everyone is on his toes all the time. The best way of doing that is to keep frequent touch points and maintain a detailed activity log with a tracker for each activity.
10: Getting an Independent Perspective Helps: It is important to get a third party perspective and therefore advice of external advisors is always a good idea. This brings about rationality and objectivity in the whole process. However, one should never let the advisors drive the discussion as they may have a minimal stake in the deal. While carrying out a landmark transaction, one would come across situations which do not have precedence. No one advisor/expert can be trusted with a critical decision when the stakes are high. Hence, it is recommended that multiple opinions are taken. Not only does this provide clarity but it also gives leverage to cross question experts and push their thinking to the next level.
In summary deal making is all about:
• Realigning expectations and managing the softer aspect of the partnership while balancing the interest of all stakeholders.
• Remaining humble, build trust and respect very early in the process.
• Being upfront and transparent and ensure alignment in key areas.
• Finding solutions jointly to close the deal in a timely manner.
• Ensuring, the Negotiator has, at least, all of the key traits referred above.
To conclude, the transaction will only happen if there is a keen desire from both sides to close the deal. While there will always be some give and take during the discussions but all negotiations must end up with a feeling of win-win for both partners.