Executives approach a possible transaction with the steely resolve to be disciplined in negotiations. Accountants, investment bankers and lawyers are hired to assist internal resources in this process. Then somewhere along the line, this self-imposed discipline breaks down and the prices and terms which are accepted are much less attractive than planned.
I had the pleasure of collaborating with the head of M&A practice for a premiere New York law firm. His firm specializes in mergers and acquisitions and is involved in many of the largest transactions. I asked my colleague to explain the phenomenon in which executive teams start off with a disciplined approach to price and terms, only to see that discipline erode towards the end of negotiations. My friend laughed, and then gave a colorful explanation. He said that what happens at the start of the process is that the executives give instructions to advisors that they must get the deal done on the executives’ terms. With that mandate, the lawyers begin hard negotiations with the other side. Then somewhere along the way, the instruction changes to “win the deal”. While it is seldom said “Win the deal at all costs”, that is essentially the message.