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.

ww

w.dilanchian.com

.au | Copyright © Dilanchian 2015

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

ww

w.dilanchian.com


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

ww

.dilanchian.com.au | Copyright ©

Dilanchian 2015

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

ww

w.dilanchian.com


Deal making workfloww

ww


Dilanchian 2015

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.

ww

w.dilanchian.com


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

ww


Dilanchian 2015

In the Business relationships hierarchy going down from category 1 to 4, in

general terms there is more:

Inputs for contract draftingw

ww


Dilanchian 2015

• 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

ww


Dilanchian 2015

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

ww


Dilanchian 2015

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.”

ww

w.dilanchian.com


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

ww

w.dilanchian.com


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

ww

w.dilanchian.com


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

ww


Dilanchian 2015

• 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

ww


Dilanchian 2015

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

ww


Dilanchian 2015

ww

w.dilanchian.com

.au | Copyright © Dilanchian 2005-2015

19

IP & Technology Law

Business Law

Capital Raising

Entrepreneur Support

1. We identify, model, contract and protect intellectual property

2. We structure businesses, deals and transactions

4. We provide tools and training ensuring your relationships, deals, documents and processes yield better results.

3. We build strategies and documents for capital raising

IP & Technology Law

Brand developmentTrade mark registration

Confidential information docsPatents and copyright advice & docs

IT, internet and digital media lawIP, technology & content licensing

Intellectual property protectionEntertainment and sports law

Business LawEnterprise structuring

Business structuringHR agreementsSale of business

Business contractsProduct & services docsAdvice on negotiationsIP & contract litigation

Capital Raising

Investment legal docsInvestment proposal docsShareholders agreements

Spreadsheets, slides and pitch docs for capital raising

Venture capital dealsConvertible notes

IP evaluation

Entrepreneur SupportMarketing, web & social media

Commercialisation strategyDeal making and planning

Chinese translationIssues brainstorming

CommercialisationIP evaluation

Our legal and consulting services

ww

w.dilanchian.com

.au | Copyright © Dilanchian 2005-2015

20

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.

Dilanchian - innovation and intellectual property professionals advising entrepreneurs, start-ups and established businesses on IP, technology, contracts, capital raising and commercialisation.

Suite 302, Level 3, 105 Pitt Street, Sydney NSW 2000 Australia T (+612) 9269 0229 E [email protected] www.dilanchian.com.au Skype noricdTwitter noricd Facebook facebook.com/dilanchian LinkedIn linkedin.com/company/dilanchian

Connect and communicate

deal making strategy

Documents