Negotiating and completing a business transaction, whether buying, selling or recording a commercial arrangement can be anything but a simple and speedy process. As energetic as you may be at the commencement of negotiations, a condition commonly referred to as “deal fatigue” is likely to feature and drive you and your team to unwittingly giving away value.
Deal fatigue is a very real issue. It is a condition that, to varying degrees, will arise during a negotiation where the parties begin to feel a combination of frustration, helplessness, irritation and generally being fed up with the process. Once deal fatigue has set in, you are more susceptible to giving way to pressure and to compromise on issues in order to try and reach the goal you had set at the commencement.
The causes of deal fatigue are varied. It can arise due to:
- complexity of the structures or the transaction
- too many advisors
- renegotiations of price after expectations have been set
- unfamiliarity of one of the parties with the process
- time zones making decisions difficult
- poor quality of information
- day to day distractions of running the business
The effects of deal fatigue can be:
- Agreeing to a price or terms that are less attractive than desired. There becomes urgency to do any deal, even a bad deal, just to get it done’ and;
- a deal killer.
There are some simple processes that can help minimise the impact of deal fatigue setting in. I have broken these into things you keep to yourself and things you communicate to the other party (the internal and the external).
- Be deal ready. When selling, have your data room established and in order. When buying, gather as much publicly available information on the target as you can. In both instances, take time to learn the elements of the legal documents you will be expected to sign.
- Learn as much as you can of the other party; what drives them, their reputation, what the deal means to them.
- Make a list of the things that you are hoping to achieve from the deal (value, timing, life after the deal completes etc). Refer to this list often during the course of the deal.
- Identify from your list, the things that are fundamental to you, and the things you are prepared to fold on. You need to write down your “walk away” price.
- Be patient and be prepared to take a day to focus on other things. This will help to reset your demeanour when the situation gets pressured.
- When you are feeling the pressure, talk to someone you trust who is not involved in the transaction. Sometimes, simply vocalising the circumstances giving rise to your frustration can give you the solution, even without the other persons input.
- During negotiations, watch the behaviours of the other party and their advisors carefully, to spot the habitual elements of an individual’s behaviour (eg their bravado in meetings) from the emotional, less rational drivers. Use these observations to your advantage (eg show willingness to listen, have one-on one conversations to explore ways of breaking deadlock).
- Push for getting a Term Sheet or an MOU agreed and signed at the outset. Early engagement on the fundamentals of the deal and timelines provide a reference point for stalled negotiations.
- Actively manage timelines.
- After the first draft of legal documents are presented, or the financial model is delivered, establish an issues list. An issues list helps avert getting bogged down in the detail of particular wording or presentation of numbers and focuses attention of the fundamentals that need to be agreed.
- Establish clear lines of communication and reporting, and who is responsible for which aspect of the transaction. Backroom conversations between parties when their advisors are working to achieve a deal that meets the original specification are unhelpful.
- Don’t be afraid to walk away; this will give you a different mindset when progress is stalled. I have a client who often repeats the quote “the opportunity of a lifetime happens every day”. He is particularly good at portraying a relaxed attitude to doing a deal, which puts pressure on the other party to hold it together.
All in all, it’s most important to realise that deal fatigue is real. When you encounter it, the best advice I can give beyond some of the tools I have listed above, is to make sure you are ready for it. Many famous people have expressed their thoughts on preparation. I like the words of Abraham Lincoln:
“Give me six hours to chop down a tree and I will spend the first four sharpening the axe.”