Download - Deal Making Strategy
DEAL MAKINGSTRATEGY
Good deals make an enormous contribution to wealth creation and protection. Deal making is more than
negotiation and only sometimes involves a contract.
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Deal making truths & falsehoodsTrue False
1. Being good at deal making is all about selling in negotiations X
2. To get a good deal select the right business relationship, documentation and process X
3. Deal making always needs a contract X
4. Every deal has a standard type of contract X
5. For better, faster and cheaper results, first do the deal, then see a lawyer for paperwork X
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Deal making documentationDeal making documentation has many names and variations. A common fundamental is project and risk management. Documentation helps to stage manage entry into deals. Drafted properly, all avoid stumbling into a contract.
• List of deal points• Proposal• Project plan• Term sheet• Memorandum of understanding• Heads of agreement• Letter of intent• Deal memo
1. arrangements,2. understandings (eg an
memorandum of understanding),3. undertakings, and4. contracts (eg procurement,
outsourcing, and tendering).
Four deal making options w
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Making a deal involves defining the terms, rights, obligations, prohibitions and other provisions for a business relationship. There are four deal making options for modelling legal relationships:
1 2 3Negotiation Stages
1. Positioning2. Negotiation, alternative
options and compromise3. Agreement on the deal or
final breakdown in negotiations
Negotiation Preparation• Test assumptions regarding facts,
parties and process• Define the issues• Assess the positioning of each
party – note their needs, locate common ground
• Set the range of objectives (minimum to maximum) and your target objective
• Rehearse the options and scenarios – do "what if" analysis
• Craft the strategy• Select and modulate negotiation
tactics and style
Negotiation Tactics• Consider the opening
position on each issue• Anticipate responses to
the opening position• Consider counter-
responses• Concessions• Reciprocals• Walk away• Vague responses• Modulate timing• Fallback positions
Negotiations methodologyTo select the best deal making option, review the negotiation scenario
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Deal making workfloww
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For best practice in deal making complete A, B, C and D
Industry variationsFor simplicity, the broad observations in this guide ignore industry-specific variations. In practice it is vital to take account of them to produce relevant, effective and innovative deal making documentation that will be readily accepted.
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Parties in dialogueParties align or form
common viewsParties have a meeting of
minds and contract
Business modelA business model defines an enterprise’s framework for delivering value to its stakeholders. It can shape its capabilities, offerings, policies, operations, and pricing policy. In turn it provides a context for deal points and options for future stages in deal making.
Negotiatingdeal points
Legal options:
Deal Structuring
Arrangement
Undertaking
Contract
Tender contract
Bespoke contract
Memo of understanding or other documentation
Legal options:
Document Types
Intellectual property title:- patents- trade marks- copyrights- confidential
info- designs
Outcomes
In-house standard contract
Examples:
• More extensive and valuable intellectual property
• New or increased revenue
• Cost reduction• Increased market share• Increased channels and scale
of operations
• Greater employee loyalty, satisfaction and retention
• Relationship development
Examples of deal points: Scope of workPayments WarrantiesQuality standard
Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
Deal making value chain
Understanding
Business relationships hierarchy
Category 1: Competition• Pure competition• Regulated competition
Category 2: Cooperation• Informal networking• Unstructured network
Category 3: CollaborationSharing > Coordination > Coproduction
• Co-operative• Licensing• Distributorship• Joint Venture (contractual or incorporated)• Franchising• Outsourcing (some types)• Strategic Alliance (some types)• Co-production• Partnership
Category 4: Integration• Integrated company or other type of organisation
Business relations workflow
1. Knowledge sharing2. Integration in business operations (eg
structures, systems, policies, functions, processes, procedures and offerings)
3. Interdependence4. Commitment of resources for joint
interests, rather than separate interests5. Joint asset ownership6. Focus on long term outcomes
Type of relationships shapes workfloww
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In the Business relationships hierarchy going down from category 1 to 4, in
general terms there is more:
Inputs for contract draftingw
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• Your product definition (describe in at least a sentence the product or services, its method of production, supported by definitions of each component, part, accessory or element)
• Your project plan (define project tasks, processes, party roles, outcomes, payments, and specifications)
• Your contract key dates (eg start, finish, milestones, delivery and payment)
• Your contract graphics (illustrate links between parties, processes, documents, money flows and outcomes)
• Your contract management system (what is to be the filing system and database for monitoring action against the contract's specific wording?)
Six measures for contract certainty:
1. Follow a planned deal making procedure. If you fail to plan, you plan to fail. 2. Use business decision support tools to identify and assess needs with
checklists, questionnaires, instruction sheets, letters etc.3. Set performance standards – use service levels, performance measures,
KPIs, specifications etc. They are better than vague terms, eg “best endeavours”, “fair”, “reasonable”, “due diligence”.
4. Check the project management capability of every party. Invest in understanding industry variations in project management.
5. Plan fall back positions in case things go wrong, eg mortgages, liens, warranty, indemnity, limitation of liability, guarantee and termination clauses. Strategise, diarise, manage transactions, monitor and review.
6. Build exit procedures for safe, prompt, clean and lasting exits.
Best practice for contract certaintyw
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Deal making in seven steps
Apply common sense principles in deal making:
• Work with people you trust• Be ethical• Define the required process• Consult specialist or professional• Communicate• Ensure variations are proper• Eliminate ambiguity• Adopt statements of values and codes of conduct
Step 1: Follow common sensew
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Photo credit: www.onewaystock.com
Trust
Character
Honesty Openness
Capability
Competence Capacity
Step 2: Make and keep records
• Record and document management involves, making records, and storing, controlling, sharing and archiving documents.
• Make your emails about deals as precise as traditional correspondence.
• Sometimes it’s better to make a record and communicate at the same time. Prepare and share a file note or memo or send an email: “Further to our phone conversation on 20 July, I confirm you’ve accepted my company’s offer of $5,000 to do this web development project.”
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Education & Training: Train personnel in record management. Use policy and procedures manuals.
Record keeping: Draft records to document conversations, meetings and events.
Record retention: Essential for legal compliance and protection of assets.
Record storage: Store all records. Keep IP records permanently or at least for their economic life.
Record destruction: Ensure destruction complies with organisational and legal requirements.
Step 3: Work with a skilled team
Your internal team may include employees, officers, senior decision makers and shareholders. Your external team may include consultants, lawyers and advisers.
Selection criteria include:• Cultural fit• Technical expertise• Scope of deliverables• Operational compatibility• Innovation in deliverables• Avoidance of conflict of interest
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External Advisers
Conceptualise
Document Deal Points
Model Relationships
Draft Contract
Negotiate & Transact
Reporting & Analytics
Templates DatabaseIndustry Knowledge Transaction System
C-Suite Channel PartnerLegal Contract Manager Customer
Step 4: Select the right process
• Establish dialogue between the parties• Select the appropriate deal making option:
Arrangement / Understanding / Undertaking / Contract
• Control negotiations, stage manage movements forward to each next stage
• Work towards a “meeting of minds” by the parties on all deal points
• If the intended deal is contractual, use the phrase “Subject to contract” in pre-contractual communications
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Communicate
Deal making methodology:
1. Test assumptions2. Define issues3. Assess each party’s needs4. Set objectives5. Rehearse options and scenarios6. Select negotiation style and tactics6. Implement
Step 5: Negotiate the dealw
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• If a contract is needed, sing this mantra: “A good contract is custom-built in content and design for specific circumstances.”
• Use business decision support tools (eg checklists, questionnaires, documented procedures)
• Remember that generic contracts are not designed for or by innovators, avoid generics
• Draft, refine, check and recheck - to create a precise, consistent, unambiguous, comprehensive and structured contract
Step 6: Agree and document the dealw
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There’s a productivity challenge due to shifts in business practices, models and circumstances caused by technological and business ingenuity, globalisation and many other factors.
For quality performance control, set and control service levels using mechanisms such as:
• Spreadsheets for financial analysis• Project management methodology• Risk management tools• Setting KPIs and other standards
Step 7: Quality & performance controlw
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Important DisclaimerThis document is an overview for general guidance only. It does not replace the need for advice on individual cases. For specific advice your particular circumstances must be taken into account.| Liability limited by a scheme approved under Professional Standards Legislation.
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