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| Beating the Sharks at Their Own Game |
On the 12-16-16 Episode of Shark Tank presentation by the mother
from Seattle, Washington, who has designed removable and reusable magnet
stickers for hanging art, I witnessed a bit of deal making art from the
contestant. First, she was passionate, confident, and likeable; always a great
platform to establish in negotiations. Secondly, she was well-prepared and
could easily articulate her prior financial performance. Third, she came in
with a very impressive record of prior success on QVC. Too many contestants
come in with a "save me" attitude that is not effective. Magnet Lady focused on growth and what she
and a Shark could accomplish. She was
precise in her ask (what she would use the funds for) and her valuation
expectations.
All of this was impressive, but where she earned a grade of
A was on her deal creativity and execution under fire. First, Lori was trying
to pressure her into a single bid, which is a technique many of the Sharks have
tried to use. They try to elicit a single bid auction with the implied threat
of the Shark walking away if their initial offer is not accepted immediately.
In our Mergers and Acquisitions practice, we find this to be the single biggest
mistake that entrepreneurs and business sellers make. They often jump at an
unsolicited offer or non-contested offer that ends up being far lower than what
a competitive market process would produce. Magnet Lady deftly and respectfully
kept the doors open with a comment to the effect that once we were partners,
you would not want me to make any rash decisions. This allowed her to receive
additional offers from the other Sharks. This resulted in a substantial
improvement in her valuation.
So now she has Lori who has been leveraged up by other
offers and she knows that buyers hate this. Magnet Lady believes that Lori is
her best partner going forward, but her initial offer is one half of what
Magnet Lady originally asked for. She also knows that Lori will probably not
just raise her bid directly in a bidding war type of auction. So Magnet Lady
counters with a very creative structure that commits Lori to her original bid
for a valuation at the closing of the deal, with a contingent performance
Kicker. If that performance measure is reached then Magnet Lady will receive
her originally proposed valuation.
This would have been an excellent strategy with several days
and an experienced advisor to help her craft her counter proposal. But the fact
that she did it in real time under intense pressure from skilled deal makers is
quite remarkable. She knows with Lori's help, hitting her targets will be a
slam dunk. So she soothes Lori's ego by not forcing her original ask, but
artfully gets there with a slightly different structure. Plus, she has again
reinforced her confidence in her venture by putting her skin in the game and
not asking for the entire value up front.
Buyers love this. Done deal. When
your magnet days are over, maybe you will be "attracted" to a career
as a deal maker. See what I did there?
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