Think Like a Buyer: Valuation & Deal Structuring with Javier Enrile

21:36Prequin set it off, man. BlackRock acquired them and now everybody's on a buy private company data frenzy right now. Right, no, BlackRock, yeah. They are with Allardy and then this one. In terms of private asset managers, they've got a really good penetration here. Okay, so you go through this, you got these different sources, you find these deals, you build relationships, you look for that opportunity when it's like, hey, the company's ready to sell or fortunate enough to reach them at the right time. You described yourself even before as a valuation geek. How do you think about intrinsic value versus relative comps when evaluating deals?

22:10Every practitioner has a different approach to valuing an asset. And obviously, we all know the three methodologies, what's kind of cash flow, intrinsic, and then relative value. You look at present transactions or publicly traded comps, right? Should we explain this real quick? Because there's people brand new to this. Sure. You know, of course. So then DCF analysis is when you forecast the financials of the firm and then you discount them back using a discount rate. Essentially, it's supposed to reflect the riskiness of the cash flow. So essentially you're discounting the cash flow, you're discounting it back to today using that risk.

22:43And then that gives you what in the trailer called intrinsic value in the sense that that is in our view, what is intrinsic value of that asset. And that's a DC discounted cash flow analysis. Then there is the cons, which are not forecasting the finances of the firm, but rather you're saying the firm has a certain amount of earnings, and then you look at what others have paid as a multiple relative. And then you say, well, if others have paid X times earnings, and there is a comparable publicly traded firm that is trading at X times their earnings, then it's reasonable to assume that then the firm that you're valuing should have the same value.

23:20So you use the multiple, the 10 times, and then apply to the companies to the target's EBITDA earnings. And that is what we mean by relative, right? It's relative to what the market is paying for them and what others have paid for similar firms. And then you make your nice EBITDA adjustment table. And you pay less. You try to. You try to, yeah. So these different schools of thought, right? So some people like relative valuation, right? Because it's easier. There's less assumptions. It's more market-driven. It's easier to explain. My view is private equity tend to use relative value releases because they like to use that approach.

23:56And then the other approach is you put more weight into the DCF analysis. It's more complicated, more assumptions, more thinking that has to go through it, much more difficult to explain. This is where you really incorporate your synergy assumptions on the deal. Exactly, exactly. So the pros of the advantages of using the DCF, you can get granular on things like that. You can get granular on the synergies, for example. You can phase them in or out. You can phase them over time, something that you couldn't do on the comps. So the DCF analysis allows you to become much more granular about certain things and more precise.

24:29You can calibrate the discount rate that you use. You can separate cash flows and use different discount rates. So essentially, it's a much more precise way of calculating the value of a firm, whereas relative value is a much simpler but less precise. You can't really calibrate or dial up or down certain specifics. But look, it's just cross and cons. Everyone uses some people, which is the approach that I like to use, right? They use a primary methodology, which I tend to like DCF. And then you use the comps, the relative value, more as a guide. Are you off? I like what the market is telling you.

25:02Are you very low? Are you very high? But you use the DCF as your primary methodology. Primary. And then the secondary could be the relative comp. Yeah, that makes sense. Obviously, for practitioners like I am, we take pride of our analysis. We want to make sure, of course, that we never pay more than what the intrinsic value is. And the only way we can get to that intrinsic value is the DCF analysis. Are you pretty transparent with the model when you're talking to a target? Never. Never. No, no, right. Never, never, never. So that's mistake, which I've seen many times before, number one, which is hoping.

25:31It's like hoping that then the seller will agree with you on the assumptions that you're putting for the business. It will never happen. They'll just tinker with your model. You'll never agree because then you end up fighting over and over about assumptions on the modeling. And then you'll never agree, right? Interesting. Okay, this is good. I need to learn this stuff. Because sometimes I just, people come, they'll do the comp thing. Like, here, headliner deal. And it's like, okay, a company is like growing like 80 % a year. You're not growing at all. You're a flatline business. You're not going to get that valuation at all.

26:00There's that piece. And then part of me is, oh, let me just show them how I came up with the math. Right. Trying to think I'm building a relationship by being transparent. But you're telling me not to do that. I tell you not to do that, particularly in the DCF analysis, because in my experience, it's like the death by a thousand cuts. Yeah. So they'll try to negotiate you on whether the equity risk premium that you use for the discount rate is the right source or should be another source. In my view, you'll never get there. So my typical approach is where I just tell them, this is how much within your business is worth.

26:31If you want more, then counter. Can you walk us through how you model discounted cash flows, especially in these cross-border situations where assumptions like discounted rate and currency risk come into play? When you think about cross-border, the two risks that you're trying to quantify and measure is the currency exchange rate. There's obviously the expenses and revenue of the target are denominated into different currency. And two, the geopolitical risk associated with a business doing business, business doing business, the target doing business in another jurisdiction. Essentially, there's two schools of thought to measure those two risks.

27:07One, the one school of thought is you forecast the cash flows in their local currency, and then you use a discount that is local. So for the discount rate, you use the comparables that are companies traded in that jurisdiction, equity risk premium from that jurisdiction, etc. You then discount those cash flows at the local currency, and then that gives you a value in the local currency. And then if you want to translate that into your reporting currency, so in the US dollars, then you just exchange it at the spot rate. The idea there is that all the country risk, all the currency risk is being measured by the discount rate, the local discount rate that you're using.

27:45And also then you're forecasting local currency. So you're essentially controlling for that because you're forecasting local currency. It's all based on local currency. So just localize the whole model and the currency, then it's just all those. It's just the discount rate. Yeah, just adjusted right into it. I don't like that method. Now, the second one, which is the one that is more rigorous, and I like that, right, is you continue to forecast in the local currency. Because I think that's better, and we can talk about why that is. But then, for purposes of discounting in the UDCF, you first translate those local cash flows in local currency into your reporting currency using a forward curve.

28:19Now, the forward curve, right, so this is the forward curve. I will tell you, essentially, that's a measure. It's trying to measure the inflation rate, right, so an exchange rate is going forward. So you're exchanging local currency into euros at a future exchange rate. And then that's supposed to capture all the currency risk. And then you have then your reporting currency cash flows. And then for the discount rate, you use your own country or your own reporting discount rates. So using, for example, the U.S. companies. But then what you do is you add a premium to the discount rate. It's a country premium, which is supposed to measure additional risk with the cash flows that now are coming from different jurisdictions.

28:57I like that better overall because you're then able to, again, you have more precision. You're able to dial up, dial down the country risk the way you feel, depending on the geopolitical risk of that country. And it's more transparent overall. That's interesting. You'll actually forecast the currency. Yeah. Yeah, we use our sources. I don't think that I can forecast exchange rates, but you can get the fork or you can get from bankers. You'll get their consensus on the expectations of currency. Look at the euro. We've seen like pretty significant changes just in the past year. Yeah. Things are a favorable dose, now they're not as favorable to us.

29:28No, that's right. And then the same, likewise, with adjusting the cash flow to your other overall risk of doing business in this country. The important thing at the end of the day is not to cross-border, is to somehow measure currency risk and geopolitical risk. And there are two ways of doing it. They're both palliative, so there's nothing wrong with any one of them, right? It's just that the second one is more intuitive. It's more direct of just, hey, this is where we think things are, both in currency and the geopolitical side. The other advantage of using that second method, where you are forecasting local currency, but then you're translating to yours using the forward curve, it is that if there's changes to the forward curve, the example of changes in expectations of the currency exchange, then you can adjust live, and then that will have an impact.

30:14Whereas in the first method, you can't. Those are good stuff. Yeah. Other things, deal structuring. What are the most overlooked aspects when it comes to deal structuring? Yeah, look, deal structuring in many ways has to do with protecting, in my mind at least, protecting the downside. So in my mind, you've gone through the evaluation exercise, you've come to a price that you think, okay, this is fair. How about if the firm doesn't perform going forward? It's not what you expected from a financial perspective. So deal structure, in my mind, has a lot to do with putting place tools within the structure that independent the company underperforms financially.

30:50Then you are able to reduce the amount of money that you pay, essentially. Or you are able to then get priority returns. So get more money ahead of the other shareholders of the company. That would be another way to structure a priority, right? At the end of the day, that's really what matters. Because at the end of the day, if the company performs as expected, if you can forecast the firm and the company performs just fine, then you're going to be happy. No one is going to complain. The issue is when it totally underperforms. Having things such as earn out in place, priority returns, guarantee returns, or minimum returns will allow you to continue to perform at the returns that you expected, even if the company underperforms.

31:29Okay, like warranties, I know. Yeah, yeah. That's another set of instruction that you can do, right? If you think about sort of risk management on a transaction. Yeah, so you have warranties, then you have a whole reps and warranty policy. There's other things, but you have reps, your warranties, your earn out, and then you mentioned priority returns. Well, let's start with that one. How does priority returns work in M &A? What happens is you say, well, we're going to start your deal and say, typically the way we'll work better is like if we are 80 % shareholders, we buy 80 % of the firm and 20 % remains with someone else.

32:01So we buy 80%. It's an easier way to explain it. And then in that context, you're going to get 80 % of the earnings. The other person's going to get 20 % of the earnings. But then we structure the idea where we say, look, over the first five years or the first couple of years, I'm going to get 100 % of the earnings. You're going to get nothing. That's priority. I'll get the first priority on the money and the earnings, either for a period of time or until certain performance is achieved. And then you, the other shortholder, you're going to get nothing until certain things happen. That's the way priority returns.

32:30So if it performs the way you think, then everyone, I get 80, the other person get 20. If it underperforms, I'm going to get my first. So I'm going to get my 80, and the other person is not going to get nothing. But even in underperformance, I continue to, me, I continue to get my 80%. There's many ways of structuring, right? But that's essentially how it works. So you will get the first priority of the earnings ahead of anyone else. And of course, if it doesn't perform as well, then that would probably do to an extent. If you're totally underperforming, you're going to be worse than you expected, right?

33:04But that protects you somehow. That's interesting. It kind of reminds me of the VC, getting your preference. That's right. VC works like that. It's the same concept, apply more to a cash flow in companies. The VC guys, what they do is like, so when the company sells, they will get their preferred return, whatever that is. And then after that, the proceeds go to the remaining shareholders. That's why sometimes the common equity gets wiped out, unfortunately. It's the same concept, really. Yeah. It's just more applied to earnings. Yeah, but you're putting the cash flow. Right. It's more applied to cash flow.

33:29for like year over year cash flow. So we got that covered. Yeah. What was the other tools we got? We had earnouts. A lot of people are familiar with earnouts. You love them? Hate them? What's your... Most practitioners are cautious about them because there's litigation risk associated with that. There is issues with obviously restricting the operations of the firm. Whenever you are buying a company and you're putting in place an earnout, chances are that the seller of that company will put some restrictions for you. You can't do anything as a buyer that you want because that might impair their ability to make their own.

34:00So those are the negatives. The positive, of course, is the structure. Then you end up paying less if the company underperforms. So I like them, but I think you have to be careful. There are some people out there, like they think their own is the solution to it all, which is not... It's easy to be the solution to it all. And it sounds great. Of course, why wouldn't it? Pay less money up front. You don't hit your number. It's fine. No worries. You need to be cautious of the knock-on consequences. like the strings attached that come with the discontingent type of structures. And then there is litigation.

34:32So there's quite a bit of it. The litigation will come here in place where the sellers don't make their own out and then they sue the company because they say, oh, you did X, Y, and Z and you didn't. How does those usually turn out? If I'm looking at a deal right now and I'm like, okay, they want a big headliner deal price and get that. So we'll structure it. And you're like, okay, you know that it's going to be hard to do. And it's, but given that Now I'm probably going to anticipate some litigation because they're not going to be happy. What ends up happening? It all comes down to clear drafting.

35:02And I know it's like a generic answer, but it is true. The way you draft there now, right in the contrast, has to be very simple and clear and not ambiguous. The room for litigation, in many ways, it will come when something was not drafted precise enough. So there's room for interpretation. If you draft it clearly, if it is simple, then they might litigate. They just will have no grounds. These are good points. We got priority returns, earnouts, warranties. So we talked about, if you think about like priority returns, earnouts, it's more about financial and that performance. But the other risk that you need to manage is how about if what you get is not what you think you got?

35:38How about if this firm that you just purchased, in fact, has a massive liability, a lawsuit that wasn't disclosed to you and that it wasn't public somehow, you couldn't even find out through diligence? Because these companies primarily have been, many of these companies that we work with I have been operating for many years, there's no due diligence in the world that will allow you to be 100 % certain. Are you always inheriting an unknown risk? Warranties and indemnities is a way to shift the risk of unknowns onto the seller. To your question at first, right, as to one of the things that people don't care much about, that is one.

36:12People don't tend to think that negotiating a very robust rep and warranty package on your contract from a buyer perspective is critical. They just don't care too much about it. And you know why? Because they've never had a deal that went wrong. If you talk to practitioners that haven't gone wrong for a while and some deals that they've had have gone wrong, they totally understand how important it is. Because what happens is if the deal is going no problem and it's going well, your contract is on the drawer and no one cares about the contract. The moment that things start to go south, I can assure you that then the contract is going to be essentially the most important thing in the world.

36:47And when you've gone through those processes where, you know, what is important is what is in the contract. because that determines what you can recover, you can't. Then you realize how important it is. But most people don't think about it because they say, who cares? What is this contract? I'm here with the rest of the warranties. I don't even quite know what is this for. It is critical because if the deal goes out, that is the one area that you're going to use to be able to recover. Can you give me examples of these warrants? Yeah, yeah. You remember the made-of disaster, of course. Back then, when you were buying investment managers, we want to make sure that we weren't buying an investment manager that had made-of exposure.

37:19But of course, you go back, because there's these investors where a lot of investment managers were involved into that. And so you would want the company to warrant to you that they didn't have any exposure to Meta. Because then you close the transaction on that basis. Then if you later find out that in fact they had it because there was something that you weren't aware of and it was there, then you can go recover and sue the firm and get some compensation. So that would be a good example. Another typical warranty will be representation where you don't have any lawsuits. To the extent that you close and then all of a sudden you realize you find that there was this lawsuit that the company didn't disclose to you and that you didn't find through diligence, then you have the ability to then go and sue the company and recover some compensation.

38:00So it's essentially, you're asking the company to tell you that certain things that are bad are not there. Because in fact, if there is, you have the grounds to be able to recover. Otherwise, you got nothing. As a buyer, you're stuck with a liability that you didn't know about and have no ways to recover. What's interesting warranty reps? So a rep and warranty insurance, insurance. So there's not just separate reps. It's kind of like the same. It's a statement of fact that the rep or the warranties, they're used interchangeably. So you can use them both the same way. Okay. So when you say warranties, you interchange the word as reps.

38:32And then when you hear a reps and warranty policy, they cover both. They cover both terminology. Just general, like, hey, walk a little bit through about how you use those policies. It's relatively new financial innovation with reps and warranty insurance. It's been around for a while, only for a few years. Without rep and warranty insurance, if a warranty is breached, then you're going to sue the company that you bought or the shareholders of the company. Now, if you buy insurance, then it is the insurance company that will be providing you with compensation rather than the shareholder or the firm that you just bought.

39:04So essentially, it's shifting the risk from the seller to the insurance company. It's interesting because before, you always do a holdback. So you could do it. Traditionally, you could. You do a holdback, and I feel like it's alternative is reps and warranty, which you pay. Who usually pays, seller or buyer? So in this case, you're buying, right? So then the seller has breached the warranty. So then the seller is paying you, the buyer, for the breach. Who pays for the policy at close? Typically, it'll be the buyer. Buyer pays for the policy. They get that coverage. They don't have to do a holdback.

39:32Seller is happier about that. Super happy, right? Something does happen, though, that reps and warranty policy usually just goes up to the amount. You typically have a holdback on. It depends. You negotiate with an insurance company. So it could be the whole amount for the purchase price. It could be something less. For example, it could be situations where the insurance company does not cover a particular warranty or wrap because they don't want to cover it. They got their exclusions that they put in there. Exclusions. So they'll do their own diligence and say, all right, we're not going to exclude all this stuff.

39:59In which case then you go back to them having to put some of the proceeds in escrow so that it covers it in case of a breach. And then the responsibility shifts back to the sellers because the insurance didn't cover it. But it's important to understand that the creation of this business, which is prep and warranty insurance, has totally transformed the business. The seller is happy because they're not in the hook, right, for most of the warranties. The buyer is happy because the insurance companies are much better paying than the sellers. So everyone wins in that situation. You can check. There's a lot of literature out there that is monitoring how often insurance companies pay, or they've always paid for the most part.

40:34So there's a track record of insurance companies paying when they need to pay. And in most cases, to be honest, people are honest. So then there won't be a necessity to, the reps and ones that will be true. So it's good for everyone. Yeah, it's interesting. I got some data on this stuff, but policies that get paid out. It's really interesting. Yeah, that's super interesting. Hopefully we can publish that. Yeah. That's a good reason to follow me on LinkedIn. I always post silly stuff like that. The question I have was around alignment. You have valuation. We talked through the deal structuring and how that's important.

41:02When you look at correlating between valuation, diligence, and integration planning as the deal progresses, how do you think through that? If I can like continue a circle in the way I typically do it, right? First, you come to a value of the firm that is on a standalone basis. So you don't think about synergies for now. And then you add on either expense, revenue, both synergies. That increases what you think the company is worth. And then you typically make some number of assumptions. You come to a value. Then in the diligence process, it's all about retesting those assumptions. So for example, if you think next year the company is going to win five clients, then you're going to check in the diligence process, right?

41:35In the past, they've won five clients every year. then you feel much more secure about that assumption. So the diligence is, in my mind, a process of continuing to test your operating assumptions that then drive the DCF. Then in diligence as well, there's a way to then, there's obviously just starting to think about refining your synergy assumptions. So how much cost, even if you're taking out revenues, you're going to increase. Then in the diligence, you continue to then retest and refine those assumptions. It's kind of a vicious circle. Yeah, so you'll find stuff out in diligence that's, wait a minute, We got to adjust that assumption on the synergy based off what we found in diligence.

42:12You know, there's certain things that we're not going to hit as much revenue synergies like we thought we are because totally different sales market or we don't have as much overlap in customer base like we thought we did. So we'll adjust that. Okay. That makes sense on diligence feeding back to the model. Integration, right? Integration planning. Nobody wants to talk about integration these days. Who wants to talk about integration? In many ways, integration will have, and that's what I mean by a vicious, not a vicious circle, but a circle, sorry. Integration has a big component on the synergy.

42:39So for example, you will need to think about how you integrate. So you have two teams that are overlapping. So you will need to understand how those two teams will integrate to see how much cost you can take out. So in diligence, you'll start digging into how you're going to integrate the two businesses. And then that will then not only inform your plan as to how you're going to execute on that integration, but then will confirm your integration assumption. For example, on the revenue side, you're planning to integrate two sales teams together. And then you have to come to a view as to whether that combined team is going to sell more or less than your standalone.

43:11The integration will inform your synergies. So essentially, it's a circle that continues, goes on. The more you learn about integration, the more you can refine synergies, and then you can adjust your evaluation. The more you learn about the company, the more you can test your sub-brain assumptions, et cetera. the key is in that is and i see some practitioners are doing it making sure that you know what you're paying for the standalone and then what are you paying if any for your synergy i've seen some practitioners out there where they have one kind of synergistic view of value and then they say oh i pay x for that that's not the right way in my mind the right way to do it you need to have come to a view of value and standalone basis this is what if this company hypothetical buyer There's no synergies.

43:55There's no integration. What will the company be worth? And then you then layer on synergies. And then you decide whether you want to, in fact, pay for those synergies or not in your purchase price. But differentiating between the two is critical. And it adds lots of discipline. No, this is the right way to really think about it. It does all feed back into each other. One of the pitfalls that I see, right, of course, doesn't happen in my shop, but I see it in other firms where it is hard to change things. And we'll talk about inertia a little bit later. But it is hard for deal teams as you go into diligence and you find something that is really telling you that the assumption that you had free diligence when you submitted it, no money in the law, it's just not right.

44:33It's just hard for the teams to come call us and say, okay, we're going to change this assumption. That may mean that we might have to go back to the seller and say, we have to pay less. Having that discipline and being able to, in fact, do it when you feel that you need to is very important. It is. I agree. I first learned about this from Carlos Sesta. I think you're a tried and true corp debt person when you really think about it this way. Because when they teach M &A, they teach you the phases like in a linear line. But actually, it's no. It should be like more of a 3D thing with this. A spiral framework is what we call it.

45:06It's like a spiral. I'm actually working on a course to teach like that many life cycle. And I'm adding that in there. Okay, this is a life cycle. But understand, it's not. It actually goes like this. No, no. It's very circular. That's the key to one of the, in my mind, one of the successes in M &A. And it's not just M &A, right? It's buying an asset, however you want to buy it. It's that if you think about it, it's a very imperfect situation. The sellers, particularly in a private asset, if it's publicly traded, then it's different. But in a private situation, you as a buyer will never know enough or as much as the sellers.

45:36The sellers will always know more than you do. The critical thing here is digging as deep as you can. And as you have more information, then always filter that information into your operating assumptions that drive value and other things. And if you do that, and you do that dynamically, you're constantly doing it, then I think you'll end up with a very good precise price for that particular asset. Everybody always rushes to get to LOI. And then afterwards, you still should be doing this adjusting your model afterwards, right? That's definitely a lot harder. You know, if you want to go back and renegotiate, that's always a tough thing to do.

46:09Some people religiously will avoid it. They won't do it. They just either. So I think there are two schools of processes here, if you will, right? There are people that kind of like to get fast into LOI, like very high level assumptions. There's some analysis, but not that much. And they go deep in diligence, right? But of course, then there you have to be willing to then like change things because you learn more. The other school of thought is that you're going to put a lot of work into the LOI itself. Sometimes you can't do it. It's a competitive process and you have to do what you have to do.

46:36But if you are able to, right, then you have a choice and people want to put a lot of work on the front end. so they have a very well-baked price that they feel very comfortable with in the LOI, such that then the diligence is more confirmatory. It's making sure there's nothing totally wrong with the company, right, or weird, or illegal. You can calibrate in between the two approaches. If I can, because the process allows me, I like putting a lot of work on the front rather than putting a value there that I'm not so sure about, right, and then having to retrade or having to renegotiate in diligence, right, because that doesn't help anyone.

47:07You've got to stay at auctions to do that. Right, right. Right. And I mean, sometimes you can't, you need to do what you need to do, right? True. And I found too, the nature of the deal, sometimes it's very direct competition. That makes it really tough. And then it's just a lot of factors of the people. Some people are just finicky like that. They just want to see where you're at with price and they want to do that with this little information. But then I agree. Generally, if you could do more upfront, really, at least the key things, your real big assumptions you're betting on, you can do that upfront.

47:36Maybe it's requiring a few technical folks to talk to each other and things like that. That's what I think, like bilateral situations tend to be in many ways more efficient because then you can get to an LOI they feel comfortable with. And then if the price is not there, then you stop there or you don't do anymore. And then you part ways. Whereas in more competitive auction processes, you might end up with two bidders that just put a price number and they just took it into the next phase. And then the next phase, they find what they find and they don't like it and they walk away. In many ways, bilateral situations tend to be more efficient.

48:06But again, I'm sure my sales side bankers will disagree with me, right? Well, we'll settle that out of the bar. Any bankers listening to this, we love you. There's points. I'll tell you, I got one of my classic guys, Nick Schumach over here. I can't get him on the podcast. He's a little microphone shy. But I just learned so much about negotiating deals and structures from him. Because it's just, yeah, he's just done it. And it's just, there's things like I would want to pull him on a deal in a situation where it's like, yeah, I can tell he's done this. He'll know how to like really negotiate it well when it's really intricate.

48:34Oh, no, I bet. But we don't like the auction process. That's our conclusion of the podcast. Yeah, that's an interview. Can you share a negotiation story, maybe where there's a moment where theory clashed with reality and what you learned from it? Oh, geez. So there was one, it comes to mind right now, because we're talking about changing the price and the diligence. So there was one situation where we were in diligence. We had negotiated the price with no mining law. But then we had in the no mining law for the valuation, where we had assumed that a couple of key clients, big clients were coming.

49:03In diligence, we learned that, in fact, most likely than not, those two clients are not going to come in. And we learned that because we were able to see some data that suggested that they were not going to come in. Of course, we learned that in diligence is significant. It's going to reduce the value. So kind of like the rational, kind of like the subscriber of the school of thought in negotiations that parties are rational and that you find a common monality, et cetera, which was early in my career. So that's what I thought. And I said, of course, if I go back in front of the seller, I'm going to tell the seller, look, those two clients are not going to come in.

49:35So I totally understand that I need to lower the price. So that's what I did. I went back into the boardroom. I sat down with, imagine, kind of like six, seven people on the sell side. And sellers went outside and explained, look, we just learned that these couple of clients are not likely. So therefore, we need to lower the price to X. And the interaction was like a cell phone being thrown at me. And then got up the entire... Wait, did you literally have a cell phone thrown at you? Yeah, literally. and the entire team left. Obviously, the CEO kind of got up and left. First, throw the phone, got up and left.

50:06And of course, everyone has to follow him. Then got out of the room. The guy picked up his phone behind me and left the room. And then I learned a real valuable lesson there, which I can explain later. But that is, to your example, people are rational. You think that people are going to understand a very clear example where it wasn't a factual conversation. He knew that those two clients were unlikely to come and he knew that we're likely when we purchase this because he told us, but it's in many ways, which is what I subscribe to, if we talk about negotiations, we can expand on that. In negotiations, you are talking with irrational beasts.

50:38People are very rational animals. Man, you subtract 20 foot off anybody's yacht they're planning to buy, that's enough to throw a cell phone at you. Exactly. That's going to happen, right? So there's no rational behavior. Sometimes this rationality goes right out the window. Because again, the argument was very rational. He should have understood it. It was a big drop, but at the same time, it was a hidden. I was going to ask you, what's the craziest thing you've seen in M &A? Are you having anything crazier than getting a cell phone thrown at you? Negotiation tables tend to be quite crazy, right?

51:06So I think that's where you get most of the crazy stuff. I've got people telling me like, oh, your offer is cheap and you are cheap. Attacking you on the negotiation tables. It's primarily there in negotiation tables when the egos come into place. And sometimes it's not black and white, right? It's a lot of gray, crazy things like phones being thrown at you and people telling you you're cheap and things like that do happen. My advice to everyone is to always kind of be calm. I try to dodge. To dodge, sorry. Yeah, dodge. But try to stay calm and understand that at the end of the day, in these negotiation processes, rationality sometimes, most times just goes out the window.

51:42There are other things that you can do to ensure that the process is well run, but sometimes it's not about finding common ground because you won't find it. I appreciate you taking time for this conversation, helping me become a better army scientist. Of course, love to. fellow listeners love to get feedback hear from you especially if you've gotten all the way this far like I want to eventually give some reward for how many podcasts you listen all the way to the end or reach out to me I like connecting with listeners on LinkedIn love hearing your ideas on how to make this podcast better topics I haven't covered and I take the criticism I like you taking that so I can get better at this until next time here's to the deal

52:30Thank you for taking the time to explore the world of M &A with our podcast. We love hearing feedback. Tag us on a LinkedIn post, add a review on Apple Podcasts. We'd love to hear from you. If you need help standing up an M &A function or optimizing one that you already have, we're here to help. And if we can't help you, we probably know someone that can. You can reach out to me by email, Kisan, K-I-S-O-N, at mascience.com, or you can text me directly at 312-857-3711. If you just want to keep learning at your own pace, visit mascience.com for a lot more content and resources. That's where you can also subscribe to our newsletter.

53:15Again, that's mascience.com. Here's to the deal. Thank you.