Sell-Side M&A Masterclass Q&A: Buyer Tactics, Leverage, and Negotiation Strategies

Hi, I’m Paul Giannamore. I’m an investment banker, and I negotiate for a living. Today, I’m here to answer viewer questions, and I’m going to start with some questions here on buyers. The first two questions are: how do buyers know there are other buyers bidding and you’re not bluffing? And a similar question is, you mentioned multiple times that dealing with one buyer negatively influences your leverage.

Do you ever find yourself in a situation where you have one buyer, yet the buyer is unaware of this fact? How do you cope? And what would your advice be to me as a junior dealmaker? Well, let’s talk a little bit about that. When I think about a formal M&A process, I think a lot about Texas poker.

Back in the late 90s, David Sklansky wrote a book called The Theory of Poker. And in that book, he posited his fundamental theory of poker. And basically what he said was, every time you play your hand differently from how you would have played it if you could see your opponent’s cards, they gain. And every time your opponents play their hands differently than had they been able to see your hand, you gain. And so I think about poker as decision making with incomplete information, and trying to force your opponents into making a mistake. And I think about M&A as decision making with incomplete information, trying to force your opponents to make mistakes — almost the same thing. And so if we start with a Texas Hold’em example — for all of you who are not familiar with Texas Hold’em, I apologize — but when you think about Texas Hold’em, let’s say that you’re dealt big slick, right?

You’ve got Ace King, and I’m dealt a Queen Jack, for example. I can’t see your cards. You can’t see my cards. The flop comes down: King, 10, 3, offsuit. Now, you’re arguably holding a better hand, but I can’t see your hand, and you can’t see my hand. If I were to fold, acknowledging that you have a better hand, I’ve played optimally and I’ve gained, right?

I’ve shucked my cards. I played as if I could see what was in your hands. Now, had I gone all in, and you called, I would not have been playing optimally, because you were holding the better hand at the flop. And let’s say that the turn and the river don’t help me. Your expected value has increased, and you just won a big pot.

That’s what David Sklansky is referring to with playing hands as if we could see our opponent’s hands. And in the same way, when you think about a formal M&A process, it’s almost in a lot of ways akin to Texas Hold’em, because you’re setting up a formal process. Just like the game of Texas Hold’em, right?

You’ve got the flop, you’ve got the river, you’ve got the turn. Information is being released at each stage of the process — same thing in a formal process. So do buyers know that there are other buyers? Well, if you’re running a sealed bid auction, they don’t know that. Obviously they can infer that from the standpoint that you’re actually running a process.

Now, am I often dealing with one buyer? Not often, but it happens time to time. And it’s very rare. As a matter of fact, I can’t think of one particular instance where I began a formal process expecting to only deal with one buyer. But sometimes that happens, right? You put together the materials, you send them out to potential bidders, and then you get one indication of interest.

You’ve got only one buyer. You’ve got some decisions to make. Now, that buyer is involved in a formal process now, right? So that buyer has tendered their initial bid. They may assume that there’s a lot of other buyers. They may assume that they’re the only buyer. I don’t know. What they can’t see is what’s in my hand, and what’s in my hand is their bid — the only bid.

So they need to determine how they’re going to play their hand, and I’ve got to determine how I can play my hand. Now, I’m going to use the term deception here, because poker is a lot about deception. And I don’t mean it in deceiving the other party, per se. But we’re dealing with bluffs, we’re dealing with concealing information, we’re dealing with ferreting out information.

If you’re playing poker, you’re trying to determine what’s in your opponent’s pocket. And you can do that based on past performance. How do they play — tight, loose? What’s their demeanor at the table? What are their facial expressions? Do they have any tells, and so on and so forth? In the same way, the buyer in that process would be attempting to ferret out information on my side of the table.

So I do often find myself in a situation where there’s one buyer. This question here went on to say — well, let’s go back down here — do you find yourself in a situation where you have one buyer, yet that buyer is unaware of the fact? And you mentioned multiple times that dealing with one buyer can negatively influence your leverage.

Yes. I think the primary way having one buyer negatively influences leverage is really psychological, because if you have one buyer, you on the sell side are going to run a little bit scared, right? So let’s look at one buyer versus two. Let’s say that I have two buyers that are both very, very interested in buying the asset, and they’re aggressive in their bidding.

I can afford to run an aggressive process. I can afford to negotiate hard, because I’ve got two buyers there, and if one falls out, I’ve still got another bird in the hand. If I’m dealing with one buyer, I might be a little bit concerned. I might play a little bit scared, because I don’t want to lose that buyer and end up with a busted auction.

It’s in that particular case where you really have to run that process, I think a lot of times, the way that you would if you had multiple buyers. Because if the buyer is sophisticated and the buyer is used to dealing with these sorts of processes, they’re going to figure it out by the way that you act.

So I guess in summary on that question: there are a lot of times that you’ll end up with one buyer. And I think the general rule here is to run that process with one buyer just as you would if you had five or 10 different buyers. You run through the iterative bidding stages. You acknowledge in your mind, from an emotional perspective — you get it out there and integrate it.

And what I mean by that is, you say in your mind, I have one buyer, and I can’t let my own emotions — some sense of identity that may exist — affect it. So it’s actually a general rule that any of these things that I’ve touched on today are just one of the most important things that we need to concern ourselves with. I’ve run one-buyer auctions before that have been extremely successful.

So don’t get scared by the fact that you have just one buyer. What techniques do you use to extract valuable information without revealing too much? So, information was a very, very important topic of the first episode in this series, and I want to go back to that. Because when I think about information in an M&A process, I think about two broad classifications of information.

On the one hand, we have information that qualifies the asset. So, for example, the fundamentals, the business, the legal constructs and constraints, the company, and so on and so forth, right? That’s the information. And then we have information regarding leverage factors. And your job, whether you’re on the buy side or the sell side, is to ferret out as much information as you possibly can, while concealing information on your side.

So if we think again about those broad classifications, we have the asset itself and we have leverage factors. Let’s think about how do we ferret out information. We can do direct questioning. We can do indirect probing. We can consult third-party information sources, public filings, and individuals, and so on and so forth. And then we can observe behavior.

And the information qualifying the asset is typically garnered through direct questioning, right? You can sit down and have a conversation with a seller, for example, about the asset in question. Where it gets more tricky, and in some ways just as important as information qualifying the asset, is information regarding leverage factors in the negotiations. And while you can do some direct questioning there, you’re often better off — and I’m going to talk a little bit about that, because I don’t think I got so into it in segment one of this series.

Let’s say that you are selling your business, and I’m your advisor, and we sit down and we say, okay, we’re going to start prepping this thing, and you go to market, and you’ve got some key account. We’ve got executives here that appear to have deep relationships with some big clients, and if we lose them, they might take business to the competition.

What have you done to lock them up? And you look and say, well, we’ve done a decent job, but we don’t have the best contracts in place. And our main guy, he’s got another year on his contract, but we probably could do better locking them up. Now, we don’t know what buyers are going to do. We haven’t started the process yet, but we’ve identified issues that might cause us some problems later on down the line.

Like, so, for example, a key account rep decides to take off. That could be particularly negative for our M&A deal. So when we think about ferreting information, let’s say the key account exec’s name is Jim, right? And Jim’s got a year left on his contract. Now, you could go and sit down with Jim and directly begin to question him.

You could say, hey Jim, you know, we’re a year out from your contract, I’d like to up this, you’ve done a great job, let’s renegotiate a contract for you. You could do that. And then you could start asking him questions like, for example, how important is his relationship to account A, B, C. But in the context of the negotiation itself, when you start asking direct questions, that’s going to raise some questions in his mind.

Why the heck are you asking me that? And it’s going to put you in a position where he can potentially extort you. So I think some things to keep in mind: direct questions are far better when they’re materially separated in time and space from a negotiation itself. So it’s one thing to sit down with Jim tomorrow night, have a beer with him, and say, hey Jim, let’s talk about accounts A, B, and C.

Try to garner information as to how important he really is, to determine whether or not he’s a flight risk, and if he does fly, will he take the accounts with him. You’re doing that outside of the construct of a negotiation, so it’s not going to raise a lot of red flags. If you want to take a more indirect approach, instead of asking him directly, you might find yourself in a position where, again, you’re just doing reviews of the accounts. Maybe you’re going to a meeting here and there with him and starting to build the data yourself, you’re talking to other folks at the firm, trying to understand how much leverage this guy might have in negotiations. You know, if he catches on to what you’re doing, he might turn around and say, hey, why are we renegotiating my contract right now?

Are you selling the business? For fuck’s sake, that puts you in a horrible position, because now you’re either forced to tell him the truth, which is going to put him in a position of tremendous leverage, or you’re going to lie to him, which would be a horrible thing to do. Because, you know, on the one hand it’s unethical; on the other hand, you might even be opening yourself up from a legal perspective. If you lie to him and he relies on that, it could potentially be fraudulent inducement.

So you want to stay out of direct questioning in the middle of an actual negotiation. And so if we take this to a broader M&A context perspective, when I start to think about leverage factors, the types of things I’m trying to determine are necessity, desire, time pressure — who’s got what at stake for doing a deal.

And I find that a lot of the indirect probing at the very early onset of a deal is probably where you’re going to make your money. And what I mean by that is, let’s say you’re running a sell side process, and you, the seller, want to understand as much as you can about the buyer and their motivations and their capacity to pay. You’re going to want to do that over dinner and drinks, maybe the night before a formal meeting. You’re going to want to have a lot of indirect conversation. And this is why I always advise clients: do a lot of listening, ask a lot of questions, be very careful what you reveal, because the buyer is going to be trying to find out the same information.

The buyer is going to try to figure out if you’ve got an important trip coming up that you’ve got to take, so you need to get a deal done at a certain point in time; that your wife just retired and wants to move to another country. There’s a lot of things that you can inadvertently reveal which will shift leverage from you on the sell side to the buy side.

So, direct probing, indirect questions, third party. You know, another way to, of course, ferret out information — one of the most important — is basically by observation. And that observation takes place within the construct of the formal deal process. How people react to things, how aggressive they are, how non-aggressive they are.

You can kind of start to garner how important the deal is based upon how people interact with you and the signals that they give you within the process. So I always say to myself — and for years, every time I start a process — you know, I’ve got a mental checklist. It used to be a written checklist, but now it’s a mental checklist for me, for each and every different buyer that we deal with.

What is the pertinent information regarding the leverage factors that I’m trying to get, and what sort of questions will I ask in order to get that information, to help me decide what sort of leverage and what is the disparity of desire between my client, the seller, and each individual buyer? So, what’s the most effective way to create a false sense of urgency in a negotiation without it backfiring?

Well, I think the ideal way to do that is through the strategic use of deadlines. As I’ve discussed before, there’s power in time pressure. People do not like to make decisions under time pressure. In fact, they tend to make poor decisions under time pressure. If you’re the seller, you want to use this to your advantage.

And so you want all buyers under the exact same level of time pressure. And you do that by setting deadlines. And, you know, the saying is, deadlines are made to be broken. And to a certain extent that’s true, but you can put some teeth behind deadlines. For example, if you’ve got a bid deadline set for this Thursday at 5 PM, a buyer may say to you, what happens if I don’t get my bid in by Thursday at 5:00 PM? Now, you need to use some judgment here. Thursday at 5:00 PM might mean like, hey, the investment committee won’t be able to meet until Monday morning, so the earliest I’ll get my bid in is Friday or Monday afternoon. It would be appropriate to allow that individual to enter the next round on Monday afternoon. But using deadlines, and putting everyone under the same deadline, puts buyers in a position to potentially lose. So another answer might be, if you don’t get it in on time, we’re moving on to the next round without you. Again, judgment comes into play here. I don’t know that I’ve ever really seen — at least on the sell side, I’m trying to think if I’ve seen a deadline backfire.

I think deadlines can backfire if you use them in such a way that it tends to have a negative impact on your own credibility. Meaning, if you use an aggressive deadline schedule and all the buyers are just running late — which can happen, but if that happens consistently — I think the other side of the table kind of starts to disregard your deadlines in general, right? And they’re going to kind of do whatever they want. So to a certain degree, it behooves you, when you set a deadline, to not give a tremendous amount of leeway surrounding the use of that deadline. Have you ever seen a negotiation completely unravel because of a seller’s emotional decision?

Absolutely. As a matter of fact, I think in mid-market M&A, probably the biggest deal killer out there is the emotions of the sellers. And within the next few weeks, I think I’m going to do an entire episode on emotions within the context of M&A, because it is a big one. And, you know, one of the most important jobs of an investment banker and an advisor is really absorbing a lot of those emotions. Because, again, I won’t talk about it extensively today, but I will talk a little bit about it.

In investment banking, a lot of the guys that I work with and have historically are probably sociopaths, like individuals void of emotion. And I think that sometimes makes it difficult. Look, on the one hand, I think it’s an asset to be able to go out and kill people mercilessly without any sort of conscience whatsoever.

There’s probably a benefit in that, right? But I also think that understanding emotions, understanding the emotion and the psychology of the seller and how they’re going to deal with things, I think is really, really important. And, you know, one of the things that often happens in M&A is you have a man or a woman who owns a hundred million dollar business, for example, negotiates for a living, right? Out there doing contracts left and right, very successful at building a business. But now it’s time to sell it.

That person is emotionally attached to that business. That is their baby, and their ego and identity is tied to it. And any affront to that business in any way, shape or form tends to irritate them, and they take it very personally. And so you’ll have situations where a buyer might put one offer on the table and then, two weeks later, materially change some terms as they gather more information.

And of course the seller takes that personally, and now all of a sudden can’t trust that buyer and thinks that buyer’s toying with them, and gets angry. And emotions tend to cloud judgment, right? Emotions tend to — like, for example, if you have a, uh, let’s use a typical example, right? Like, fear and anxiety tend to be pretty similar on the emotional spectrum.

And let’s say it’s two o’clock in the morning, you walk out into a very dark parking lot, and you hear a loud noise. Well, at two o’clock in the morning, because you’ve got a little bit of anxiety, you’re walking alone in a potentially dangerous area, you hear a loud noise — you’re gonna jump, and you’re gonna quickly turn around, and your heart might start to beat faster.

Your palms might sweat. If you were walking in that same garage, in bright sunlight, at high noon, and you heard that same noise, you might not even have paid attention to it. So, the emotional state and the core state that you’re in can definitely change the decisions that you make. And without understanding that, you know, one of my key jobs is actually making sellers understand how emotions do influence their decision making.

And we use a variety of different techniques. I’m gonna go into these in a future episode, but, you know, one of those techniques is emotional reappraisal. If a buyer changes a deal term, if a buyer negotiates very hard, if a buyer does something that appears to be an affront to the seller, the seller shouldn’t take it personally.

The seller should reframe the deal and look at it as the buyer actually acting on the best behalf of its client, its firm, whatever — making the best decision they can for its client, acting appropriately within the context of what that buyer is supposed to be doing. And it’s not a personal attack on the seller.

It’s the buyer doing its job. And so if the seller can understand that — that yes, this buyer is doing his job, now, I’m not going to get offended, but I’m going to do my job — then I think you can break down some of the emotional balance and focus more on some better decision making. Again, I’m going to get into this extensively, because this is a great question.

I mean, the seller’s emotional state and emotional unraveling can certainly blow up a deal. And it’s probably, in my opinion, at least in my personal experience — more deals blow up because of the emotions on the sell side, as well as the buy side, than they do for fundamentals of a business, where, you know, something is indeed found that blows the deal up.

Now, it’s usually negotiations and emotions causing things to run awry. What’s the best way to make a buyer bid against themselves without realizing it? Well, there’s a lot of ways to get a buyer to bid against themselves. I mean, one very simple term — and I don’t know if they’ll realize it or not — is, somebody makes you an offer, you just say, hey, make me a serious offer, and then we’ll have a serious discussion, right? And so you’re not even willing to have a discussion unless another offer comes in. That’s one way to do it. I don’t know if the buyer would realize necessarily what’s going on or not. Another way is, you can find yourself in a — as we talked about earlier — a control auction process with one buyer the entire time. He’s been bidding against himself and doesn’t know it. So I can’t think of anything above and beyond that one. Next question. If a seller has only one serious buyer at the table, how do you still create perceived competition?

Now, there’s a ton of these one-buyer questions coming in. I’m hoping you’ll never have to deal with that, but for those that you do — we talked a little bit about it before, but again, it’s about molding perceptions at the onset, right? If there’s only one buyer at the onset — that, oftentimes you won’t know it until you start a process.

So you start that process anyway. You give them bid instructions as you would if you were running a process with 20 buyers. You deal with that buyer in the exact same way that you would deal with that buyer in the context of a broader process with dozens of buyers. And if you do that, nine times out of 10, you’ll be okay.

10 percent of the time, you’re going to totally fuck things up. What’s one piece of conventional M&A wisdom that you believe is flat-out wrong? Now, conventional in terms of what myself and practitioners believe, and conventional versus what sellers believe, might be two very different things. The latter is easier for me to come up with, though.

I think a lot of sellers out there believe that price is objective. They believe that there’s a quote-unquote going rate for a business. They believe that all buyers will effectively pay the same amount for a particular asset, which we know is very, very incorrect, right? The combination of business A and business B creates value.

So, business B being the buyer, business A being the seller — every buyer is going to have a different capacity to pay. They’re going to have a different ability to create value. They’re going to have a different strategic intent for doing that deal. And therefore, they’re going to be able to pay a different amount for that business.

Your only job on the sell side is to extract as much of that value creation out of that transaction as you can for the client. Next question. This one came in through LinkedIn as well. I appreciate it — I get hundreds of these messages on LinkedIn. I get a lot of great questions. I can’t respond to all of them, but I’m making an attempt.

So I’m going through them here. This one’s great. What’s the most aggressive move you’ve seen a buyer make in an attempt to kill competition in an auction process? You know, I’m going to do a whole episode on opening moves and shutdown moves. And, you know, we talked in the last session about the Dutch auction.

We talked about the preemptive offer. Probably the most standard is the preemptive offer, right? If buyers really understand the context in terms of valuation, as well as what the competitive scenario looks like, sometimes they can slide in early in a process with a preemptive offer and basically lock out competition. I’m gonna change this question a little bit, from most aggressive to, I guess let me say, most sophisticated. Right? So sometimes these sorts of moves don’t have to be aggressive.

They just have to be insightful and sophisticated. And sometimes at the onset, they don’t even seem aggressive, but the results and the consequences are that of aggression. You know, I once saw a process where there were a small handful of buyers on a transaction, and let’s say the price was 50 million.

At this point in time, a buyer was starting to get a little bit deal-fatigued, and he was a little bit concerned that the seller was going to shop his offer. So he decided he was going to use effectively an opening maneuver and change process rules. And here’s what he said. He read a letter that said, enclosed is a sealed bid.

This is my best and final, and we’re prepared to close immediately. You could open this bid.

The seller would take the best offer from this round and close that deal — no further shopping. All of the other bids had to be opened simultaneously with this bid, and all of the other bids needed to be exact dollar amounts. And what I mean by that — it couldn’t be highest bidder plus a dollar, right?

It couldn’t be highest bid plus a dollar. It had to be actual dollar amounts. And I thought that was a pretty sophisticated way for a buyer to come in, change process rules, move a deal into final round, get all bidders to put their best and final on the table, and have the seller open them all up simultaneously, thereby shutting out any additional competition, as well as any additional shenanigans from the seller.

So when I think about process rules, as we talked about in the last couple of sessions, I mean, there’s a million different ways to run a process. And I think buyers who are sophisticated and experienced can think of very subtle ways to attempt to change process rules that sometimes sellers will just do, because sellers get deal fatigue as well and want to be done with the process. So I think it’s important for you, if you’re on the buy side, to think about: what are the subtle ways that you could influence a seller to change process rules that might work in your favor? Some interesting questions came through here. One was, in an M&A deal, who really has the power — the buyer, the seller, the banker? And I think that’s obviously extremely fact-specific. And what I mean by that is, power is based upon leverage factors. So every deal is going to be different, right?

Like, so, if you’ve got a business that has 50 buyers that literally can’t live without buying your business, right, you’re gonna have a lot of leverage. If you’ve got no one that wants to buy your business, you the seller are not gonna have any leverage or power — the buyer’s gonna have a lot of power. You know, the banker should not necessarily have any power at all.

The banker is an agent of a buyer or an agent of a seller, and effectively is almost an offshoot of the seller. So I think of myself personally as the seller. So when I am running a process, I am the seller, I am an agent of the seller, an extension of the seller. And the way that I give my client additional power or leverage in a process is, number one, educate that client, right?

Make sure that the client understands about ferreting out information, revealing information, concealing information, all the different points of leverage, how to run the process, and so on and so forth. That’s how we can manufacture power on our side. It’s an interesting question, I appreciate it.

What’s the most effective way to psychologically dominate an M&A negotiation without seeming adversarial? If you run a process, you pretty much don’t have to do anything. The process does the work for you, right? And so that’s why I love to run formal processes for the most part, because it is a baked-in way to actually negotiate without having to be adversarial.

I mean, we’ve talked about this extensively. If I’ve got a bunch of buyers competing, doing this whole same-side-of-the-table negotiation, I don’t need to be adversarial, right? I don’t need to negotiate with anyone. They’re doing the work for me. So I think the most effective psychological way to dominate is, run that formal process and do it the right way.

Another question here is about the Dutch auction. It was the first time I had used it, on the Nomor transaction. Why don’t I use it more often? You know, the Dutch auction is great for speed, and I often don’t need more speed in M&A. As I discussed, the Dutch auction introduces risk for buyers, but it also introduces risk for me as well. Because, you know, I’ve got a price that’s falling, and if no one hits that bid and people stand back, I might ultimately end up in a worse position than I was before I began that Dutch auction.

From a fundamentals perspective, the Dutch auction was great where we were running an English auction and we were driving the price up, and then we kind of came out obliquely with the Dutch auction. I don’t know that a Dutch auction would work — and I’ve never attempted this, nor do I know anyone that has — selling a business entirely by a Dutch auction.

I suspect maybe it’s been done somewhere. I haven’t done it. And I don’t know how great that would be, because I do talk about, extensively, that sunk cost fallacy, right? The investment principle where buyers are less likely to walk away, and you will oftentimes get escalation from them — the more resources they’ve expended, the more time, money, and effort they put into a deal.

And as you’re walking through kind of an ascending price, English auction, they’re spending more money on DD. They’re spending more time there. There’s a lot more effort, there’s more thought. They become emotionally attached in some ways to the principles of the transaction, to the deal — their names on it.

And I don’t think you would get that if you had a descending price auction, right? So you wouldn’t have those iterative steps, right? You’ve got a price that starts high and these guys are just trying to hit the bid, versus taking them up slowly and incrementally. It’s an interesting question. It’s something that — will I likely do it again?

I’m sure I will. Have I done it again since Nomor? Yes. It’s just not something that I think that I would hang my hat on, and I would only use it in very specific cases. It worked well in the Nomor transaction, and it worked well in the subsequent times I’ve used it, but I don’t think it’s an all-purpose tool like a closed bid, ascending English auction would be.

How do you determine when a buyer is bluffing? I think on the buy side, bluffing tends to be a very risky maneuver. And here’s why. On the one hand, somebody can call your bluff. But sometimes, if you’re a buyer, if you think about it, it’s almost worse for you to be bluffing and for a seller to actually believe you.

And here’s what I mean by that. Let’s say that you’re a buyer and you say, here’s my offer, 50 million, best and final, I’m not paying a penny more for this business. And the seller looks at you and takes you at your word and says, okay, 50 million, best you can do, I completely understand you. Goes back, has dinner, goes and has a meeting the next morning, and the next morning the business sells for 51 million — and you were willing to pay 60.

Now, that seller didn’t call your bluff. That seller actually believed what you said. And that’s a very, very bad position for a buyer to be in: to be bluffing and actually be believed. Because then there’s no more interaction. Like, that seller didn’t even call you back up; that seller believed you, thought you were sincere.

So, you know, I don’t really concern myself so much whether a buyer is bluffing. You know, sometimes buyers will come in with best and finals. Hey Paul, this is our best and final offer at 50 million bucks. Now, if I have other buyers at better prices, then I’m not really particularly concerned whether they’re bluffing or not.

I might go back to them and give them an opportunity to increase their offer. So I would say that the risk — you know, when we actually get through buy side M&A — I’m doing a lot of sell side stuff now, but I’m going to do a buy side series, and when we talk about buy side M&A, I’m going to go into the bluffing.

Because, you know, bluffing for me is pretty dangerous ground, I think, a lot of times, for buyers more so than sellers. And we’ll get into that.

All right, I think the last question we’ll get to today is, what’s the one skill that separates elite dealmakers from average ones? And I don’t know if there is one skill. I think it’s kind of holistic, I guess. Fundamentally, instead of talking about one skill, I could talk about kind of attributes of elite dealmakers.

I think elite dealmakers have the ability to size up the context of the battlefield pretty quickly. Remember, like, when you’re doing deals all the time, you’re recognizing — you know, it’s a lot of pattern recognition. You see a lot of the same things over and over. So you have to be able to recognize what the context of the board looks like in terms of the buyers out there.

I think you have to be able to —

I don’t mean suppress emotions per se, I don’t mean don’t feel. I just mean that you have to find yourself in a position where you are not needy, right? Like, I think it’s important — everyone out there that’s going to engage an investment banker needs to make sure that their deal, while important to the investment banker, is not extremely important to the investment banker, because they’re going to have the same emotional needs that you, the seller, will have, and that’s not a good position to be in.

So you’ve got to be able to emotionally detach yourself as a dealmaker and say, you know, my job is to get my client a great deal. It’s not to get a deal done, it’s to get a great deal. And I need to be able to step back emotionally from the transaction. I think great dealmakers have the ability to help their clients manage their own emotions.

I think that, you know — and this was something that was very difficult for me, actually, and I’ve had to learn this over the years — great dealmakers do substantially far more listening than talking. It really is about extracting as much information as you possibly can from each situation that you’re dealing with, and not doing a ton of talking.

I mean, it gets to the point right now — I actually get ridiculed sometimes in my own office that I’ll sit there for 45 minutes and not say anything. And I’m the guy who, you know — my VP of admin execution always makes fun of me, from the standpoint, he’s like, sometimes it’s really awkward to be on the phone with you when we’re on some of these negotiations, because I can literally sit there for 10 minutes and not say anything at all while the other side figures out what they’re going to say.

Like, I appreciate long periods of silence. I don’t have the need to fill the air. And I think that’s a skill that very, very elite dealmakers pick up over time. And you’ve got to be comfortable with being in very awkward situations and awkward silences, because at the end of the day, that’s really what helps you kind of gauge neediness on the other side of the table.

I think elite dealmakers learn to not react emotionally. And I talked about emotional detachment, but it’s also like, you have to be okay kind of sitting with yourself and really thinking about things. You know, any M&A deal, you’ve got just an ungodly amount of data points coming at you, right?

Let’s just say you’re negotiating with eight buyers, trying to sell one business. So you’re following eight different conversations, eight different buyers who have different goals and objectives, who want to do different things, who have different abilities actually to close the deal. So you’ve got to be able and willing to sit down and really think through things on behalf of your clients. I would say the other thing about elite dealmakers — I mean, M&A is a craft, right? You can’t go to — I mean, there’s M&A courses, obviously, but it’s not like you go to — it’s not like being a doctor where you go to medical school, right?

It’s a craft, it’s more of an apprenticeship. So when people learn how to do this — how I learned how to do it is, you know, I worked with a guy named Frank Quattrone, and he was one of the best contemporary dealmakers. He’s still alive, I shouldn’t talk about him in past tense, but Frank was a phenomenal investment banker, and to be able to sit in and watch what he did and learn — so I just had a lot of great mentors over the years. And so, again, it’s a craft, you pick it up over time, you watch what folks do, you develop the skills. I think, just like any craft — you’re not doing the exact same thing day over day, you’re really pushing yourself. And I think for me, you know, one of the things that really helped me — you know, if I’m talking to junior dealmakers out there — when I graduated from school, you know, it was all about finance and accounting.

You get into investment banking, you’re an Excel jockey, right? You spend 15 hours a day punching numbers into Excel. It was miserable. It sucked. But you learned about financial modeling and so on and so forth. When you start really getting into actual M&A, I think really understanding psychology is important. You know, and you can start with basic books like, you know, Thinking, Fast and Slow.

I think that, you know, that book came out in 2012. I’ve probably read that 15 times, no doubt. And it’s a four- or 500-page book. And so if you look at my library, it’s full of psychological references, from psychodynamic therapy and so on and so forth. So, understanding these sorts of things. And, you know, Chris Voss was down here a couple of months ago for breakfast. He wrote Never Split the Difference. Great guy. And when I first read his book, I discounted a lot of the things that he said, because it’s not really particularly germane to the type of negotiating I do. But there are some things that he’s mentioned in that book — and as I’ve gone back and thought about it, and had discussions with him, that I think are very helpful in the type of negotiations that I do on a day-to-day basis. Specifically, validations of feelings, and so on and so forth. He and I do have some disagreements about the use of deadlines, but I do think there are a lot of things, on the topic of emotions and the topic of psychology, that I think are very helpful — not only in dealing with buyers, but if you’re a sell side advisor, in dealing with your own client, and helping your clients reappraise and reframe their emotional state in order to make logical and reasonable decisions.

Because, you know, at the end of the day, decisions are emotionally made, right? And it’s important, I think, to be able to work through that with your client. So I appreciate everyone who has sent in questions. The best way to do this going forward is just drop a comment or question into YouTube, and we’ll definitely take a look at all those and attempt to respond here in future episodes.

You can also join me on LinkedIn — my link is in the description below. And finally, we love to kill it for our clients here at Potomac. If you’re thinking about an M&A transaction anywhere in the world, I’d be happy to chat with you. You can reach out to us here at Potomac by clicking on the contact us link in the description below.

Again, thank you for joining me today, and I’ll see you on the next one.