Doing deals is not something to be left to the ignorant. Unfortunately, there are a great many more places mistakes can be made than most deal makers realize. Hence the title. Fully assessing where problems can (and certainly will) arise is really what having a structured “rule list for deal making” is all about. It’s simply a way to help business executives gauge risk and viably predict problems before they actually arise. Even though deal makers lack the proverbial crystal ball for predicting the future, they can remain safe by staying within the parameters and rules set forth below.
Have an overarching deal strategy
I sometimes hate the use of the word “strategy.” The word “strategy” is overused and often misunderstood. Some use it in the 30,000 ft. context while others are more granular in their definition. Details are what due diligence is all about. Sometimes not seeing the forest through the trees is where many technically savvy investors get hung up.
Codifying and maintaining an aggressive deal-making strategy is absolutely essential for project success. Maintaining said strategy requires razor-like discipline to not stray outside the boundaries. It also means that details are not ignored at the expense of the strategy itself. This creates a healthy balance between strategy and business tactics.
Find and use the right talent at the right time throughout the deal process
Deal-making is as much a project management role as it is about finance. In fact, a lack of understanding of processes and timing can be the means of making or breaking the eventual end goal. The key to success in deal-making is knowing what capabilities are available at your fingertips and fundamentally optimizing the use of said assets. For instance, know where team members are most effective at managing processes and procedures and assign them problems they can deal with quickly to obtain maximum returns on invested time and human capital.
In short, know your resources and exploit them fully. At some point, deals become all about execution.
Keep your eye on the horizon
While you should never fight the next battle in your own mind, keeping an eye on deals stretching into the future is an absolute necessity. This is true regardless of whether or not you engage in buy or sell-side mandates. While you should never let future deals take up current mind-share, there are a few not-so-subtle reasons to engage in looking ahead. Presently a lack of focus will decrease the quality of today’s work at tomorrow’s expense. However, having one eye on the next target is obvious for a number of reasons:
Keep your eye on horizon deals, but maintain in-depth focus on today’s opportunities.
Understand the value proposition
Understanding the value-prop allows M&A professionals not to get buried or blocked by deal details later on in the process. And believe me, the details can get messy. Where the target company adds value is ultimately where the acquirer should be spending most of his/her time. Does the value come in technology, IP, human capital, knowledge, customer acquisitions, or regional specific areas?
Each deal is highly unique. As such, find the value proposition, exploit and find the chinks in its armor as much as possible. This will ensure value is added in the most synergistic way possible in a post-deal world.
Know the goals and objectives of the other side
If you structure and work with the other side in a magnanimous way and make them feel like they won, then it’s ultimately a win-win for everyone. Know the entrepreneurs’ motivations before crafting deal terms and overall structure. In other words, do the deal from the customer perspective. You will most certainly need to cross the same bridges in the future. If every stakeholder wins then you’ll be invited back to do more bridge crossing on the next horizon deal.
Don’t take advice, take information
In due diligence, its almost completely and utterly about the data. Listening to the hollow advice of other stakeholders can be detrimental, especially if the data tells you something completely different. In other words, sometimes you have to pay attention how the actions speak louder than the words of any given deal. The ultimate goal is to minimize downside risk for investors. Such risk is unearthed in due diligence processes.
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