Common Ground

The current growth of software and technology for sales enablement and marketing automation is one industry fueling both startups and venture capital investments..  As this industry segment grows, it will also fuel mergers and acquisitions.  In the short term, it also foreshadows new developments in business functions that traditionally rely on human skills – including dealmaking.

Over the past year, hundreds of start-ups and new products have emerged in the marketing automation/sales enablement space, automating, measuring, and monitoring everything from return on investment on social media for corporate brands to customer and prospects’ behavior on a company’s website to the prospect cultivation process.

These developments in demand generation, lead generation and sales readiness software have not only opened up a brave new world in which the customers and prospects influence company perceptions in the marketplace. It’s also becoming part of the way sales get done.  

Companies that adopt these new technologies are essentially automating the processes of buying and selling  - processes that traditionally are embedded in the human-based sales role.  These companies are separating the process and structure of buying and selling from the relationship and skill-based art of selling.  They help to ensure that the human elements of selling are put to use earlier and more effectively in the cycle and aren’t spent on processes that need to be consistent and repeatable.

It’s an interesting development.  It also represents a recognition that all business functions – even those requiring innate and highly developed human skill - have structures or processes that need to be consistent and repeatable. 

Operations-focused enterprise software moved business functions from spreadsheets and individual workstations to decision-enabling applications a decade or more ago.  The new wave of automation software in sales and marketing indicate that business functions  associated with intuitive, human  processes – marketing, sales and yes, dealmaking, can and are being streamlined with software. 

Like the move from spreadsheets to fully functional, access-controlled software for business operations, the human skill-based functions are moving from one-way communications and access tools such as email, fax and hard copy.  Decision-enabling, access-controlled software, including services such as Transaction Commons, are changing the way deals get done not by replacing human capital, but by maximizing it.  A secure neutral space for negotiating the deal and an automated process for tracking the timing, versioning and receipt of deal documents do precisely that.

Dow Jones VentureSource research on the percentage of mergers and acquisitions since 2000 that were valued at $250 million or more found that these deals accounted for only 5.1% of venture-backed companies sold during the period.  The median price paid for a venture-backed company during the first nine months of the year was $21 million, according to VentureSource www.venturesource.com.

In a growth economy, human skill in putting the deal together is a primary factor in closing a deal.  In the current environment, in which deals are trending toward smaller and fewer, using that human skill efficiently is all the more important. 

Our inboxes are filled daily with newsletters and blogs on deals and dealmaking.

Good deals that went bad; bad deals that got worse; bad deal climates improving; getting the deal done; getting the right deal done. There’s a fair amount of skepticism built in to most of these reports and commentary, which is consistent with traditional dealmaking. In his recent retrospective Ten Years After,

http://www.thedeal.com/newsweekly/features/ten-years-after.php,

The Deal’s editor Robert Teitelman discusses the skepticism with which even reporting on and writing about deals was received in the late 90’s: “Dealmaking was a state of mind, a psychology, a way of organizing the world.”

True enough: dealmaking is analog and human in many respects. Initial interest, exploring synergies and due diligence, if mutually beneficial and successful, give way to a negotiation process. That negotiation process can be characterized either by skillful, conflict-avoiding give and take, or by shrewd but deadlock-producing demands and concessions.  It’s all a matter of the state of mind.

Back to the inboxes and all those commentaries on getting the deal done, and the thought arises that so much is written about the complexities of dealmaking precisely because it’s still a state of mind. The art of the deal is premised on mindset, skill and human factors such as identifying opportunity, establishing rapport and negotiating. But what about the science part of the dealmaking – the framework?  How many deals break down in negotiation because a process that could be consistent and commonly accepted is treated as a state of mind?

It’s a statistic that won’t show up in our inboxes, but it’s fair to say that assumptions, idiosyncratic manual inefficiencies and just plain old human error are factors.  At Transaction Commons we believe that as the business climate undergoes continued change, the way in which deals are organized will need to adapt, along with our mindsets.

Those “analog,” human elements that constitute the art of the deal can be deal-makers when they are judiciously combined with consistent, commonly accepted processes.  Enabling these portions of the deal with accessible technology in turn enables humans to get the deal done.  

What makes a deal move forward?

Every transaction has internal considerations that affect deal speed.  These can range from the big-picture considerations of business complexity and heavily negotiated transaction terms, to the seemingly minor points of terminology in the negotiated deal documents.  Recent Booz & Company research points to an external factor that impacts the time required to seal a deal.

The recently published Merge Ahead: Mastering the Five Enduring Trends of Artful M&A, by Booz & Company’s Gerald Adolph and Justin Pettit, explores velocity and impatience as an emerging M&A trend.  Business processes that used to require multiple steps requiring human execution can now be performed in seconds.  Adolph and Pettit argue that shaving time and costs in a better, faster, cheaper competitive business environment creates carryover urgency in M&A transactions.

The evidence Adolph and Pettit present certainly suggests that the larger the deal, the more the need for speed plays out.  The authors report that between 2004 and 2007, execution time for mega deals – transactions of more than $1b - decreased by 20%.  Deals in the $100-500m range also took less time, decreasing by 18% over the same 3-year period (p. 57).   

Where is that 20% reduction in time coming from?  Is there a parallel reduction in expense, or are faster deals more costly? Is deal speed achieved with additional human and technology resources?  Is “quality” sacrificed in the process (whether in thoroughness of due diligence, understanding of deal terms, or other matters)?

For us at Transaction Commons, this discussion raises relevant inverse questions about the dealmaking process.  At what points in the process does a given deal bog down? What tools and practices are available or can be adopted to prevent deal slowdown?

The better, faster, cheaper business environment is premised on refining specific business processes for efficiency.  This principle can and should be applied to dealmaking. Defining and streamlining key steps in the deal process and applying the right tools at the right time might be among the most efficient, cost-effective and valuable ways to achieve forward momentum.

One of the first Buyer/Seller interactions in the acquisition process is addressing the target’s information disclosure and negotiating a confidentiality agreement. Soon after the buyer initiates contact, and the seller decides to proceed, the seller’s typical first step is a protective legal measure: Contact our attorney and sign our CA (Confidentiality Agreement).” 

Read more...

Read any high-level advice about dealmaking, and you’ll likely encounter the conventional wisdom: if you want to speed up the deal, keep it simple.

The dealmaker’s reality is that deals are more prone to complexity than simplicity. They tend to take on a life of their own as they progress from due diligence through negotiation and acquisition agreement completion. Add the complications of the human interactions between and among multi-party deal teams and you have the core ingredients for a protracted transaction.

Read more...