At Cleinman Performance Partners, we work on a lot of transactions. Our Transaction Services Group covers a lot of territory. We handle divestitures, acquisitions, mergers, employment relationships, appraisals…even divorce settlements. Unique to our firm, our services cover the entire width and breadth of a transaction, from visioning to analytical to documentation to transition support. Soup to nuts. Start to finish. With well over 2000 transactions under our belt, we’ve seen a lot.
On the surface, transactions can seem simple. Even an employment agreement that compensates on a flat salary or per diem must be full of details. A contract must lay forth the duties and rewards of the relationship. But even more important it must define what happens under the worst-case scenario. And there are a lot of worst-case scenarios.
You may have seen the Farmers Insurance commercials that share a variety of vignettes about crazy insurance situations; like the moose that got caught in a swing set and destroyed a motor home. Their tag-line is “we know a thing or two because we’ve seen a thing or two.” This is so very true of the deal-making business.
About 40% of our deal-making efforts are fixing the mistakes of others. These errors are generally the result of naïveté on the part of the parties to the relationship, but also extend to errors of omission and/or commission by outside professionals. It is unfortunate that often the parties to a relationship have a reasonable vision, but don’t have the “in the trenches” experience to improve on elements or see the pitfalls. Unlike those unique situations noted in the Farmers Insurance Hall of Fame, the resulting learnings are neither funny nor covered by insurance.
- Compensation mechanisms that pay the associate more than the practice nets
- Buy-In arrangements that grossly under or over-value the asset
- No documentation on how to terminate the relationship
- Transaction designs that have Uncle Sam picking off 65% of the transaction value
- Unbalanced duties and responsibilities among partners
- Failure to properly capitalize the business
- Inequitable compensation among owners
- Illegal and unenforceable conditions
The list is long. And often times sad.
Designing and negotiating transactions is 40% science and 60% art. Each situation is different. At Cleinman Performance Partners, we have a saying: “If you’ve seen one deal, you’ve seen one deal.”
But while there are a lot of variables with any deal, one thing stands out for us as we work with clients. Often, these clients have already engaged with another party to vision their arrangement. Often, these clients share with us elements of their vision that we know are setting up a short or long-term problem.
Before you engage with another party with whom you’re contemplating any kind of relationship, it’s important to understand that the moment you open your mouth or send an e-mail, you’re engaging in negotiations. And since you’re a principal to the transaction, if you’ve said it, it must be so. This is especially true if you’ve communicated using absolutes such as “we will do this” or “this is how we’ll get it done”, etc.
A brilliant colleague of mine taught me how to deal with the natural tendency of business owners to speak in absolutes. I’ll never forget his words from over forty years ago, when he was a consultant pitching an idea to me and my boss. In our first interaction, he said: “Now I’m just crying aloud,” as a prefix to an idea. With these words, I learned a life’s lesson. This consultant, who later became my partner in my first real business, taught me to be careful to voice ideas without establishing commitment.
After a life-time of designing, negotiating and documenting transactions, I have developed a few rules that have served me well.
- Get clarity, in advance, about what you’re really trying to accomplish
- Decide if a transaction is the right way to get it accomplished
- Decide if you’re really “partner material”
- Get agreement that no one agrees to anything until everyone agrees to everything
And negotiations start at hello!