I nearly signed a deal today that I would have regretted…

In the past few weeks I’ve been negotiating a number of concurrent deals at the same time for Colony. One particular deal today was due to be signed today but I decided not to do it at the 11th hour. I shouldn’t go into the details of the deal so let me just say that it was like we were going to buy something.

Here were the mechanics of the deal

  1. This was something I really wanted for Colony. I think “buying” this would have been a huge win for the company and we would have grown to be an even more profitable company in the medium to long run.
  2. The seller though knew they were in demand. They told us shortly after we showed interest that there was someone else willing to buy them for about 10% more than what we were willing to pay. Still they decided to go with us because we came first and they could settle the deal quicker.
  3. The seller sent us a binding offer letter where if we signed, we had to pay a substantial amount as a deposit. This deposit will be forfeited if we didn’t execute the final sale & purchase agreement in a month (which is a really short time for due diligence and more).
  4. Because they were in demand, the draft terms I saw in the sale & purchase agreement were really harsh and demanding. Very against our favour.

I was eager to do the deal and I shared it with our board and investors. They were willing to do it if I was up for it and I was. The one big concern I had was that once we pay the deposit, we would have a short time frame to close the deal. That would put us at a disadvantage when it came to negotiate the salient terms of the agreement because the longer we took to negotiate, the sooner time runs out and we lose our deposit. Time then works against us, and works for the other side which puts them at a strong advantage.

The precaution I took of that though was before I signed the offer letter and paid the deposit I wanted to see the first draft of the sale & purchase agreement. I only got that draft the day we were supposed to sign the deal and boy the terms were so harsh I knew we were going to take a long time to negotiate to a middle ground. A part of me had come so far and just wanted to see the deal through, but I knew I was in trouble. I wanted the deal too badly to be able to negotiate effectively.

So I took a step back and looked at the whole situation in a macro point of view. The first question I asked myself was why this seller would hold out for us, when they have another buyer willing to pay more. I thought of two likely scenarios:

  1. The seller wanted to sell quickly, by the deadline stipulated in the offer letter. So they’re willing to give up a bit of money to get the deal done sooner.
  2. There is no other buyer. It’s a bluff.

As I sat to think about this I reminded myself of one rule in a negotiation. DEADLINES ARE ALL MANMADE. When faced with deadlines we choose whether a deadline is going to be used to our disadvantage or our advantage on the negotiation table. Clearly if I had gone ahead and signed the offer letter, I would be using it to my own disadvantage.

After some thinking I came to a conclusion that if either 1) or 2) were true, then the seller wouldn’t mind me not signing the offer letter and just signing the sale & purchase agreement by the one month deadline. Because they don’t lose time either ways. Although the big assumption here is that we’re doing with a rational seller. If emotions play a bigger part of the seller than rationality then these two points above need not apply. In fact it becomes very unpredictable.

So I went back to the seller and said “Sorry we can’t sign your offer letter today because that would put us in a huge disadvantage on the negotiating table. You are free to negotiate and sell to any other party you want, but if you’re willing, we will endeavour to continue this process to negotiate the S&P terms and sign it by your initial deadline.”

After I told the seller that I felt a huge weight lift off my shoulder. I realise that I had tunnel vision for a deal I wanted closed and that really buying them would still entail a risk. We were not necessarily better off, or worse off from forgoing this deal.  I realised that I’m willing to forgo this deal altogether.

Now that I’ve accepted that I’m willing to lose this deal, I think I can negotiate better. Of course I don’t know the outcome yet… and I’ll probably know in a few weeks time. One thing I know for sure… I would have regretted doing this deal on these terms if I had signed them today.

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