Article: Soft Skills – M&A Negotiation Lessons amid a Pandemic
*This is the English version of an article produced by partner Daniella Tavares, from the Corporate, Mergers and Acquisitions practice, recently published on Estadão.com, one of the main Brazilian news portal.
Soft Skills – M&A Negotiation Lessons amid a Pandemic
It seemed like any other Friday of negotiations, drafts, calls, and change of emails to close the purchase of a company. But it was not. On this particular Friday, I got a phone call from a client informing me the other party had backed out of the deal. What?! Backed out?! It couldn’t be! Were they really telling me that?! And practically at the last round of negotiations. After six long months of negotiating the legal aspects, getting frustrated with the news was inevitable. A strategic operation, important for the foreign client with whom I have a long-time relationship of trust and hard work. I was devasted and, at the same time, I messaged my team letting them know where we stood and inviting them to ponder:
Where did we go wrong?
Actually, I have concluded that we are great at writing big closure ads, stories about awards, and we fight to close the ‘deal of the year’. But we learn in adversity. So where are all these lessons? I propose to my team we start sharing those lessons too.
Nevertheless, with so many changes in our lives and, therefore, with so many changes in the way we work due to the pandemic, I decided to share our experience for us to reflect and start a discussion. Let me start by reminding you that each operation is singular and, what did not work out for myself may as well do for you.
Below is the exercise I did with my team and the main failure situations we identified and some ideas to get around them.
First, we reflected upon our knowledge of the sellers and their advisors. Due to the pandemic, we were not able to understand who sellers and advisors really were, who were these human beings? We needed to consider from which part of Brazil they were, their age, why they were looking to sell, and who their advisors were and their relationship to the sellers. Such information is the first indicator to compose your negotiation map.
In “non-pandemic” times, this information finds us easier and we do not even notice. Even though less explored for that purpose, the negotiation of the Memorandum of Understanding is a good time to get acquainted and gain such well… understanding. This stage is not just a draft of the transaction but also a unique time to start this personal analysis of the parties involved.
Unlike the due diligence, when the advisors get up-close and personal, the negotiation of the MoU is a stage in which not only the advisors but also the parties have a seat at the table and such opportunity should be well explored: Assessing the posture of sellers and advisors, how they negotiate, their greatest apprehensions, and the sensitive issues. All these will be reproduced when discussing the main documents later on.
It is also important to highlight the importance of not having ghost sellers nor buyers. Of course, financial advisors and lawyers will lead the proceedings, “mass” meetings, and initial meetings, but I believe that it is of the utmost importance that the sellers and the buyers join the negotiation table (or better saying, the screen) and profusely participate in the choices and more sensitive decisions. Depending on the structure of the acquisition, I would say it is vital.
When in local operations and speaking the same languages we already have interpersonal challenges, imagine having an operation with clients in different countries (and, therefore, cultures) speaking different languages.
In cross-border operations, we mainly face cultural and language barriers. Indeed, it is much more comfortable negotiating in your own mother tongue for all the obvious reasons I do not need to describe here. When the other party struggles with the English language, many times, we need to take the role of translators in the negotiation. I have learned that this is not an advised procedure. When the lawyer takes on the lawyer of a translator, they end up negotiating on behalf of the other party. After all, we do not have the technique only to translate and we end up explaining and adding intonation which, somehow, can benefit the other party.
It is a tiresome process to everyone involved and in a more heated negotiation having to deal with sensitive aspects, this barrier can make all the difference. In the hopes of getting the negotiation mentioned at the beginning of this article back on, we hired an interpreter for our conversations. It was a success. Parties and lawyers were doing what they were supposed to, and we left to a professional the responsibility to transmit the message and have the communication going. It made all the difference and, whenever authorized by the parties, I will adopt this as a standard in all future operations.
How to dribble past difficulties imposed by social distancing?
After these issues have been overcome, we need to consider that we are still dealing with several isolation restrictions and electronic meetings have taken on the central role of an M&A advisor’s routine. In this context, I could write an article only about this and the challenges it brings to all of us. In short, I have highlighted the main issues: (i) long, uninterrupted hours looking at a screen; (ii) difficulty in “reading” the other party’s body language; and (iii) difficulty in breaking up for a parallel conversation with your client.
To address the first item, in negotiation meetings, I suggest you start setting clear rules to stop for short 10/15-minute breaks every one or two hours, for example. Of course, I am not imposing a fixed timer but something within this parameter. I believe this proceeding may help the negotiation, help set the temperature when the mood is off, and the break may as well be the time you need to align something with your client in parallel.
This “time off”, very much used in soccer games, is vital in a negotiation meeting. In face-to-face meetings, we can order coffee, go for a walk in the hallways, answer a phone call when the moods get elevated. However, in online meetings, this balance is not easy to achieve. The breaks can be used to make small talk with the other party, talk about the family, the weather, something particular about your country or state. Again, we are referencing soft skills. Connections. As a great friend and professor says: “operations are relations, not just juristic acts”.
In this regard, I believe that the lack of physical presence is even more relevant in operations in Latin American countries. The physical presence builds trust, shows interest and validation. Especially when one of the parties is in another country and has another culture, the physical presence, no matter how little time, consolidates and approximates the parties. More than that, the face to face meetings speeds up the negotiation process. As I also learned from an important client: “time kills deals”. In times of isolation, we must pay even more attention on the speed of negotiation and when writing and speaking in order to get around the cultural differences and the distance in such a limiting time.
We belittle the effects of the pandemic, the impacts of not negotiating in-person to earn the trust. Sometimes we forget and ignore the difficulties of working from home, such as interruptions caused by our children and house chores. We do not take into consideration that we are all more sensitive, more stressed out, some of us gloomier, and dealing with sick relatives. All these soft skills characteristics are even more relevant at this moment.
As you can see, operations are not made only with hard skills. The biggest difference is the soft skills. And the beauty of M&A is that there is no magic potion, no standard draft, no single rule to be followed. Each case is singular, each party comes with their baggage, just like their advisors, and each company has its own past stamped which comes forward in the most sensitive and peculiar times, such as an acquisition.
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