Environment

Start with context, history, recent results, and the needs of others that won't be directly involved in the negotiations.

In particular, look for shadow boards: family members in a family-owned business, other partners in a private equity–owned business, government officials in businesses in some countries, and the like.

Values

Next, think through your own needs and concerns—and the other party's needs and concerns.

Attitude

Think through your strategy and plan for the negotiation as well as your posture and general approach. The expected deal price is an important component of that.

But it's far from the only component. Different factors will come into play in different types of mergers and acquisitions.

Cash Acquisition

In a cash acquisition, things can be relatively straightforward. You give the target cash. They buy a yacht and sail off into the sunset without ever looking back. This situation, and only this situation, may be just about the deal price.

Acquisition over Time

In an acquisition over time, there are deal points to be negotiated around when payments are earned (or not) and when and how they are paid.

Acquisition in Which Some of the Key People Stay

In an acquisition in which some of the key people stay, things get trickier as there may be deal points around those key people's roles, responsibilities, compensation, termination agreements, and the like.

People can be less than perfectly rational at times. They may care about things like their own sense of self-worth, reputations, and even impact on others in their lives. One leader sold his residential clinic to a private equity firm as part of a roll-up. They thought they could create value with cross-marketing and cross-referrals between clinics as well as improved training and best practice sharing fueled by cost-savings from economies of scale. The leader stayed on to run the day-to-day operations of the clinic.

At a strategic planning with the overall enterprise's CEO later, this leader disagreed with part of the new direction. He said, “When we agreed to partner with you all, this was not what we had in mind.” Do you see the issue? He had not “agreed to partner.” He had sold his business. He wasn't even a minority owner. He was an employee.

This is an example of why you need to consider everyone's sense of self-worth, sense of reputation, and thinking about how things impact others in their lives up-front, as you're negotiating the deal.

Merger in Which You'll Have Control

In a merger in which you'll have control, the negotiation will involve the items in an acquisition in which some of the key people stay as well as resolving how decisions are going to be made—essentially, minority rights.

Merger of Equals

In a merger of equals, the big issues are going to be about roles, responsibilities, and decision rights. These are particularly tricky as co-CEOs often get into trouble.

Attention to detail and planning out as many scenarios as you can imagine is critically important to noncontrol and even majority control deals. Even if you have done deals with the other parties in the past, plan for the downsides and remote scenarios and ensure those are documented as issues will arise and differences of opinion will raise their heads over the coming months and years. Think about the shareholder agreements, board governance rights, drag-along-and-tag-along rights, and so forth and so on.

For example, Away company founder Steph Korey broke all three key tenets of effective leadership communication when she came back as co-CEO.² This was never going to end well. The basic mantra is be–do–say, lining up what you do with what you say with what you believe. The way she led before she relinquished the CEO role the first time was most likely her default way of leading. She tried to step aside as CEO and then changed her mind, leaving a whole lot of people confused. And confusion is not the goal of effective communication.

Korey got caught. She stepped aside and then stepped back. But who she was had not changed. Her underlying beliefs had not changed.

This is why be–do–say is such an important thing to keep in mind in any leadership position and especially during crucibles of leadership like onboarding into new jobs or restarting things. Start with who you are, what you believe. Then act that way. Finally, communicate both in your words.

Let's back up. Korey took her learnings from Kate Spade, Bloomingdales, and Warby Parker and partnered with Jennifer Rubio to co-found Away in 2015. Their business success was indisputable. Adweek called them a “Breakthrough Brand with Ingenious Marketing.” They primarily sold luggage direct-to-consumer while also having a couple of physical stores and their own travel-focused podcasts and magazines. The company was valued at $1.4 billion in 2019.

Yet that success came at a cost. People described Korey as someone with a “fanatical work ethic.” She was all in with this venture, willing to do whatever it took to satisfy customers, build the brand, and build the business. The trouble was that she required everyone else to be just as fanatical and pushed at least some of them way too far. However, “the result is a brand consumers love, a company culture people fear, and a cadre of former employees who feel burned out and coerced into silence.” That is not sustainable.

So Korey brought Lululemon alum Stuart Haselden in as CEO and took the title of executive chair in December 2019. Then, just 35 days later, she reversed course and jumped back in as co-CEO.

This gets us to the fundamental problem. Her actions did not match her words and underlying beliefs. She couldn't help herself. She said, “Her behavior and comments were 'wrong, plain and simple.'” That read like she believed Zoe Schiffer's Verge article allegations³ and needed to step away to change the culture. But then she came back. Actually, she never left. She just changed her title temporarily. She'd always been running the company. She was still running the company.

When she came back it was fair to expect the culture to stay toxic as she still believed that everyone should share her fanatical work ethic.

She was out within 6 months—this time for good.

Merger in Which You Won't Have Control

In a merger in which you won't have control, you'll be on other side of some of the previous points. Eldonna Lewis-Fernandez, author of Think Like a Negotiator, suggests two of the seven most common negotiating mistakes come into play here:

Mistake 1: Lacking confidence; born of preparation, anticipating objections, and discerning hot-button triggers—“Think about these things in advance, including what you will do if they hit one of your emotional triggers.”

Mistake 2: Thinking something is nonnegotiable—“Everything is negotiable! It's a mindset.”

Get Started

Start by connecting as human beings. Pay attention to how you show up to help others to be open to you. Eldonna suggests this includes the way you dress and the colors you wear. If they're wearing suits, wear a suit. If they're wearing jeans, wear jeans. Fit in.

Eldonna also suggested that if someone says, “I see your point,” they may have a bias to visual communication. Draw them pictures. If they say, “That sounds like…,” they may have an auditory bias. Explain things. If they say, “That feels good to me,” pay attention to kinesthetics. Net, bias your communication mode to what will best connect with them.

Then fix any outstanding issues before trying to move on. Make sure you follow up on anything you committed to do and tackle unanswered questions. Doing so builds credibility. Not doing so destroys it.

Focus on areas of agreement: common interests, shared values. Start with the things that get heads nodding in the right direction. You're aiming to make everyone feel good. Why not start there.

Mistake 3: Not building relationships first.

As Eldonna puts it, “Get personal.” Clarify issues, positions, interests.

Once you've connected, you can move to the substance of the conversation. The advice is to state, support, listen, probe (staying rationally focused on issues being negotiated). Then summarize new areas of agreement and differences to resolve.

Mistake 4: Not asking for what you want. Do so.

Find and Create Alternatives

Problem-solving requires a healthy dose of listening. Ask about needs and priorities. Share information about your own needs and priorities. Solicit ideas. Suggest alternatives.

PrimeGenesis partner Roger Neill suggests the vast majority of disagreements are rooted in misunderstanding. Understanding is born of listening. Don't fall into what Eldonna calls:

Mistake 5: Talking too much. Have enough confidence and presence to let someone else fill the silence.

Build Agreement

Armed with understanding you're ready to build an agreement. This will involve proposals, concessions, summarizing, and testing for agreement. Don't hesitate to bring back in personal connections. And make sure you lock in next steps and timetables.

The last two mistakes rear their ugly heads here.

Mistake 6: Not documenting.

Mistake 7: Signing without reading. Get it down in writing. Make sure everyone reads it. Then sign it.

Strategic Priorities

Strategic priorities are things directly increasing customer impact, revenue, and profitability (e.g., medical practice deciding to add ankle surgery to portfolio).

Production Success

Production success requires the discipline to do the same thing over and over the same way with the same results while continuing improving things at the same time on a consistent basis.

Dig into the production process, its systems, tools, and track record of success and improvement across effectiveness and efficiency measures to see what they do well and less well. Look at things like production costs, waste, inventory, and working capital management. Look at the organization's talent, knowledge, skills, experience, and production craft and how they recruit and develop their production-oriented people.

Distribution Success

Distribution success requires an ecosystem. By definition, you have to distribute things from one party to another, often through a third party. Start here by understanding what the organization does itself when it comes to distribution and what they manage through third parties. Then look at the effectiveness and efficiency measures and drivers of those measures.

At UPS, the critical cog in the wheel is the drivers. In an effort to reduce driver turnover, the organization dug into what they liked and disliked about their jobs. They liked driving and interacting with customers. They did not like physically loading the trucks in the morning.

So the organization hired a bunch of minimum-wage people to load the trucks, gave them minimal training and a lot of close supervision, and put them to work. The new loaders had about 300 percent turnover per year as this was not a self-fulfilling job and had no career progression with UPS. The company was fine with this because it reduced driver turnover.

Service Optimization

Service optimization is ultimately about the customer experience—especially in service-oriented organizations. Look at how the organization views service and measures success. For some organizations, service is merely a necessary cost. Look at how these organizations are moving service delivery to others, including self-service. Dig into their efficiency measures over time.

Other organizations differentiate based on their service. For these organizations, pay more attention to effectiveness measures and their track record over time compared to the broadest possible competitive set. Restaurants, for example, consciously competed with supermarkets and caterers even before the pandemic. Not every service-oriented organization needs to deliver the experience of a lifetime. But dig into what level of service they are trying to provide and how their customers think they're doing.

Strategic enablers and core competencies and capabilities drive things directly increasing customer impact, revenue, and profitability (e.g., X-ray machines and radiologists to diagnose ankle surgical needs).

Organizational and operating priorities help deliver the strategic enablers, competencies, and capabilities.

Get to the Ground Truth

Powell described the need for leaders to know ground truth. This is unvarnished, unfiltered truth about the harsh reality. Powell got his from chaplains, sergeants major, inspectors general, and normal soldiers.

Get your ground truth from data, facts, and first-line supervisors. They are close enough to the front lines to know the truth, one step back so they can see the forest and not just the trees, and far enough away from you not to be afraid of you.

Set a Decisive Objective

A decisive objective at a decisive place and time is one that, if you gain it, you win—what Carl Clausewitz, a nineteenth-century Prussian general, called the strategic center of gravity. Ask the first two BRAVE questions, “What matters and why?” and “Where to play?” to inform your objective and first strategy choice, respectively. Research by Marakon confirmed, yet again, that, “The path to superior performance is determined by management's decisions about where to focus the firm's strategic resources (time, people, and capital).”

Concentrate Decisive Force at the Decisive Place and Time

Powell said, “Concentrate combat power at the decisive place and time,” directing “every military operation towards a clearly defined, decisive, and obtainable objective”—mass, objective, offensive, surprise, economy of force, maneuver, unity of command, security, simplicity.

In the first Gulf War, U.S. General Norman Schwarzkopf asked for one aircraft carrier battle group. Powell gave him two because he felt it “added to the insurance policy that would give us ultimate victory.”

Former U.S. President Jimmy Carter failed to rescue the U.S. hostages in Iran and later said, “If I'd sent two helicopters, I would have been reelected president.”

Ask “How to win?” The essence of strategy is the creation and allocation of resources to the right place at the right time over time. This is about concentrating your efforts to create a decisive advantage over your opponent—whether it's a business competitor or virus. Identify your key resources and deploy more than you think you need when and where it really matters.

Prepare Your Troops for Success

“Soldiers given a task they haven't been prepared for lose confidence in themselves and, fatally, in their leaders,” said Powell. Prepare them and take the necessary time to get them ready to win. This is about clear direction, bounded authority, resources, and accountability. Make sure your people:

• Know what's expected of them—the clearly defined, decisive, and obtainable objective.
• Understand what tactical decisions they can make on the way to achieving that objective.
• Have the financial, technical, operational, and human resources they need to succeed.
• Accept their accountability to achieve that objective with those resources.

Be Personally Present at the Point of Decision

The point of decision is the place where key decisions can make the difference between success and failure. Following through and being personally present there will allow you to adjust your plans in real time as “no plan survives first contact with an enemy.” Strategy and planning are useless intellectual exercises until they are turned into decisive impact.

Darwin told us it's not the strongest that survive, but those best able to adapt. This is why, even if you've delegated accountability, you must follow through and be fully engaged at the critical moments. Ideally, you'll ask your subordinates, “How can I help?” You've put them in charge of achieving their objectives—until you need to change. When you do, don't hesitate to take back control and redirect resources.