Should you prioritize getting a great deal over speed? Former Monsanto EVP and CTO Robb Fraley offers insights on balancing the competing needs to achieve desired terms in a deal versus sealing it fast.
It was the last day of January 2020, a Friday. Two negotiating teams had worked through the holidays on a large M&A deal that had been delayed for months as the parties argued over some final IP risk items. They had finally come to a mutually acceptable outcome and were ready to sign. The acquirer just needed a final internal approval and then the deal could be closed the following Monday.
But before the close of business that Friday, the US declared a public health emergency due to the coronavirus outbreak—and the acquirer hesitated. Meanwhile, a competitor swooped in and closed the deal itself, buying both the target company and its technology at a great price. During the pandemic, the technology became more important than ever. Only the competitor was happy with the result.
This story perfectly illustrates a major dilemma negotiators face with every deal: Should they press for exactly what they want and potentially delay the deal or close an inferior deal fast?
Academic research and some of the best negotiators in the world suggest that it’s best not to press for a final win and just close the deal instead. If it’s a strategic deal on the table, the benefits down the line will likely outweigh any concessions a negotiator has to make in the present and often the deal can be renegotiated later anyway. But, most importantly, a delay always introduces a risk of losing the whole deal, which should not be an option.
How Monsanto Drove Innovation Through M&A
“It’s not the deals we did—no matter how they turned out—that kept me awake at night,” says Robb Fraley, PhD, former EVP and CTO of Monsanto. “It’s the deals we didn’t do or came close to that nag at me. So, I’m always in the camp of ‘it’s better to do the deal.’”
Throughout its 120-year history, Monsanto has been at the center of controversy a number of times, but it has also been one of the business world’s greatest innovators. At the end of the last century, with the global population growing exponentially, many feared the world would be unable to produce enough food to support humanity. Food production had to increase, but the land needed to grow it was a finite resource.
Monsanto saw an opportunity in an emerging field called agriculture biotechnology and invested significant R&D to make food production more efficient, strengthening its research capabilities by acquiring other companies or their technologies. Today, most of the corn, soybean and cotton produced in America is grown containing traits that Monsanto developed.
“Several competitors over the years have told me that they had looked at the same deals and had even taken them to their boards, but that they couldn’t quite pull the trigger,” said Fraley.
Two of Monsanto’s most substantial technology acquisitions were Holden’s Foundation Seeds and DeKalb Genetics Corporation in the late 1990s. By agreeing to acquire the privately held Holden’s in 1997 for $1.02 billion, Monsanto became the largest US producer of the foundational corn seed used to produce hybrids and gained a robust distribution network for its own gene technology. When it acquired the remaining 40% of DeKalb that it did not already own in 1998 for $2.5 billion, Monsanto solidified its position as an ag biotech leader. It was crucial for Monsanto to complete both deals because of the “interconnectivity of their germplasm, which our technology team realized,” Fraley says. “We literally had just signed the agreement and were saying goodbye as a potential competitor was ringing the front doorbell. Speed was absolutely critical.”
Facebook’s Acquisition of Instagram: A Historic Deal Put Together in Days
In the tech world, one of the most notable deals that was carried out extremely quickly was Facebook’s acquisition of Instagram for $1 billion in 2012. The Facebook team recognized the competitive threat that both Instagram and Twitter, which had also considered acquiring Instagram, presented to its own business. The acquisition, Facebook’s largest to date at the time, was negotiated in just three days and the Facebook board found out about the plan only at the last minute. The deal has since proven one of the most successful acquisitions in Silicon Valley history.
The story of the Instagram acquisition highlights how short the window of opportunity can be for a strategic technology acquisition or an M&A deal. Often, acquiring companies have only days to weeks to move before the competition is activated or the business environment changes. The benefits of such a strategic acquisition may not be realized immediately—they may not be fully clear until 10 years down the line. But during those 10 years, the deal terms, in many cases, can be renegotiated. And even if the deal cannot be renegotiated later, the strategic benefits may outweigh any lasting concessions made during the initial negotiation.
Tips for Negotiating More Efficiently
Here are a few considerations all negotiators should keep in mind to ensure they don’t miss out on an important deal:
- Align clearly on all priorities: Internal teams obviously must align on corporate objectives prior to beginning a negotiation, but they must also align specifically on speed and where they can compromise in order to move forward fast.
- Exercise autonomy: The negotiation team needs to be able to seal the deal. If a final signature of someone not directly involved is needed, it should be secured immediately when the final documents are sent out.
- Beware fear of failure: Negotiating teams might be uncomfortable presenting an inferior deal to senior leaders and colleagues, fearing they’ll bear the blame for not achieving better terms, particularly when the loss of the whole deal might be attributed to the other side. Fear of failure, however, increases the risk of landing at an impasse.
- Move on…to maintain the relationship: In a January 2020 article in Organizational Behavior and Human Decision Processes, Einev Hart and Maurice E. Schweitzer state, “Compared to not negotiating, individuals who negotiate may secure favorable deal terms, but risk incurring affective, relational, and economic costs after the agreement.” The winner-take-all mentality rarely pays off long term.
- Move on…to improve the deal later: Positive feelings resulting from one negotiation can be economically rewarding in a second negotiation, according to a 2010 study by Jared R. Curhan, Hillary Anger Elfenbein and Noah Eisenkraft that was published in The Journal of Applied Social Psychology. The researchers’ findings suggest that positive feelings, not just positive outcomes, can evoke future economic success.
- Utilize post-settlement settlements: In their foundational 1987 case analysis, Max H. Bazerman et al. advocated taking another look at the outcome of negotiations. After a deal is signed, the parties are likely to trust each other more and understand the complexities of the deal better. In addition, the time pressure is off. All of that supports the creation of a new deal that provides value for both sides.
Professional negotiators are under tremendous pressure. Their organizations have certain expectations they must meet and billions of dollars may be on the line. They may feel that they’re in an advantageous position in a particular negotiation and be tempted to take their time and press hard for terms that seem perfectly reasonable, but academic research and successful business negotiators suggest that it’s often better to move with urgency to close a deal before external factors change the situation.