Doing A Deal? Here Are Some Do's And Don'ts - financial institution funding

Railway Age, March, 1999

Recently, friends of mine in the finance business were discussing a deal for which they had bid aggressively, and for which they had great hopes. They had learned through the grapevine that there was a better (cheaper) offer of funding from another financial institution, but that the offer contained a number of material conditions. (My friends' offer was virtually unconditional.) Both offers had been before the customer for some time and my friends (correctly, I believe) felt that the customer was likely working with the more economical funder to remove the conditions inherent in the other deal. Obviously, my friends' bid was being viewed as the equivalent of a "safety date for the prom."

What's a good-faith bidder to do?

What would you do in similar circumstances?

When faced with this situation, I said, "You have to give them a deadline for pulling your bid."

My friend agreed and had, in fact, already put this strategy into action. As I write this, it's unclear whether this strategy will work. What is clear, however, is that the "safety" bidder in such circumstances has more to lose by sitting tight and doing nothing than by putting its case, forcefully, to the party' that has the most to lose if he (the bidder) goes away.

One cardinal rule of deal-making: "Don't let anything you do or fail to do make someone else the winner in a bidding war that you want to win."

By doing what my friend ultimately did, he did not have much to lose. If he was (due to the fact that the other bid was a likely winner) D.O.A. anyway he was a loser. If he was a potential winner, he was merely playing the game to prevent the opposition from obtaining added time to "get there" on its conditions. And even if he did withdraw as threatened, it's likely that absent an intervening event (such as the passage of a tax year end) that the customer would come back anyway offering the deal to the departed bidder if the lowest bidder could not get beyond the conditions in its bid.

Are there other "deal-oriented" strategies that can help close transactions?

At the risk of becoming Railway Age's equivalent to "Helpful Hints From Heloise," I have a few other gems to share:

"The truth sells." No matter what side of a deal you are on, remember that the truth sells. Put another way, most negotiators aren't good enough actors to lie with a straight face, and--even if they were--the lack of conviction behind such a plan is usually noticeable by most adults. Instead, tell the truth.

In doing so, I guarantee you that you will be at your most persuasive best. If you find yourself in a situation where tipping your hand with the truth of your convictions is premature, do the only other thing that can be recommended: Keep your mouth shut!

"Take the time and trouble to learn about the folks with whom you are dealing and give them the benefit--or the detriment--that they have earned in the marketplace." If your market research tells you that someone is a straight shooter, assume that they are until something in your own experience proves otherwise. Your dealing will be more efficient for it. If others have a poor market appraisal, avoid them like the plague!

"Remember, 'win/win' deals close most often." Over the years, we have found that transactions that represent a "win" of some sort--however small--for all parties to a transaction have the best chance of closing. Yes, it is possible to completely skin the other guy in negotiating a transaction. I have seen some negotiators obtain a "rush" out of doing so. On the other side, these are most often the folks that find that they do few, if any, repeat deals with the same parties.

Recently, one of our friends left some profit on the table for the other side, despite the fact that it could have been scooped up with the other spoils of the deal. The party retaining these modest benefits did not forget the graciousness of that act when the tables were turned only a few months later and our friend needed approval for an alteration to the deal structure.

"Keep confidential information confidential." As you proceed with any type of transaction, you are going to become privy to all sorts of confidential or closely held information. You may have already signed a confidentiality agreement. Or you may not have done so. It really makes no difference. Sometimes even the disclosure to the market that one party is engaged in a transaction with another is enough to disrupt negotiations, or--even worse--alert a competitor that there is a deal to steal!

Here is a good rule that I try to follow: "Treat all information as if it is sensitive or confidential to someone in the transaction and avoid alerting others outside the transaction even to its existence."

Follow this rule. You may' have less to "chat" about with friends and family, but you will have more to brag about once they are closed.