Lawyers, Partners, and Hidden Information

This Week On How2Exit and Negotiations tactics from Black Swan Coach : Derek Gaunt:

February 07, 2023

Summary/Abstract

Hans Sperling is the founder and principal of Sperling Law Corporation, a business law firm. He has been in the space for over 20 years and has worked on deals ranging from six figures to hundreds of millions. He originally thought he would pursue a career in maritime law, but ended up in business law when he got a job with a firm in Japan. He enjoys the deal side of law more than the litigation side, as it is more positive and exciting. He enjoys the challenge of each deal being different and the positive energy of everyone involved in the deal. 

Ron and Hans are discussing the similarities and differences between six-figure and hundred-million-dollar deals. They both agree that the contracts are similar and that due diligence can vary greatly.

Business owners should be aware of the importance of due diligence when signing contracts. The contract should be broken down into three parts: the basic deal, reps and warranties, and miscellaneous. The basic deal should include the agreement of what is being bought and what is being paid. Reps and warranties are more technical aspects of the contract and should be carefully reviewed. The miscellaneous section should include clauses that validate the contract in certain states and ensure that the rest of the contract is not rendered invalid if a certain clause is thrown out.

Check out:  Acquisition Aficionado Magazine’s Latest Issue (Sponsor)

"Robert Nance Takes A Partnership-Focused Approach To Small Business Acquisitions"

Robert Nance, the CEO of Malu Investment Group and the Small Business Acquisitions Group. Robert started in the investment world by buying 125 pieces of property in Dallas in the 1990s. This included a Mexican meat distributor doing $6 million a year in sales which he turned into a successful business. 

Robert's current focus is on partnering with individuals to buy businesses in the US. He's looking for individuals between the ages of 35 to 50 who have been in management for five years and are ready to step out on their own. 

His model of partnering is proving to be successful in the post-Covid world. His model is different from the standard approach of taking a course and buying a business because he does not sell courses. He only makes money when he buys a company, and he has a network of CEOs, CFOs, and Directors of Sales that are outsourced to help partners. 

Nance negotiates every single deal, and he teaches the buyer how to create a pipeline of companies to buy. Watch the episode here:

This week’s “DEEPER” Dive: Negotiations with Chris Voss/Black Swan Coach Derek Gaunt - Author of “Ego, Authority, Failure.”

Back in Episode 41. We interviewed Derek Gaunt, a former hostage negotiator and discussed tactical empathy and the key to finding what your seller might be hiding. Today we dive “DEEPER” —- This article highlights the importance of Tactical Empathy in M&A transactions, which is the ability to recognize and articulate the perspectives of the seller. The guest, a former hostage negotiator, explains that every seller hides information, but the key to uncovering the secrets lies in using Tactical Empathy to listen for emotional, logical, or identity issues. By doing so, the buyer will be able to uncover what the seller may be hiding, which can prevent a deal from falling through. - Upgrade now for the deeper dive: 

—SPONSOR—

Attention Business Brokers, Advisors, Acquisition Entrepreneurs, and SMB Owners!

Do you want to stay ahead of the game in the SMB M&A market? The Hub is the solution you need! This curated newsletter brings you the best highlights from blogs, podcasts, YouTube, and news sources, all in one place. The HUB

Every M&A Seller you talk to is hiding information from you.

Derek Gaunt, a former hostage negotiator, discusses Tactical Empathy, the key to finding what your seller may be hiding from you in a small business M&A transaction.

Table of Contents

IN THIS ARTICLE, WE’LL COVER:

1.     EVERYBODY THAT YOU TALK TO IS HIDING INFORMATION FROM YOU

2.     YOUR RIGID AGENDA ALLOWS THE SELLER TO HIDE INFORMATION FROM YOU

3.     TACTICAL EMPATHY, THE KEY TO UNLOCKING YOUR SELLER’S SECRETS

4.     A KEY SECRET OF YOUR DEAL IS HIDDEN BEHIND A “NO”

5.     SEVEN STEPS TO EMPLOYING TACTICAL EMPATHY IN M&A DEALS

“Everybody that you talk to, is hiding information from you.”

 “Everybody that you talk to is hiding information from you,” says former hostage negotiator and accomplished author Derek Gaunt. This is especially important in the world of small business M&A because hidden information in a deal can send you to the poorhouse—really, I mean the literal poorhouse...by way of a failed business or worse…an expensive lawsuit that may lead to bankruptcy.

Yes, your seller may be hiding income disguised as expenses to avoid paying higher taxes.

Yes, your seller may be hiding a personal vehicle disguised as a company vehicle.

And yes, your seller may be hiding the downward trend of cash on the cashflow statements.

But these examples are more on the surface level of what a seller may be hiding from you.

In this DEEPER Segment, we are going to do a deep dive into what a seller may be hiding from you that may halt negotiations from their side of the table—things they want to say or are saying but may be hidden from you in plain sight. You can find the full interview of this discussion here.

Your Rigid Agenda Allows the Seller to Hide Information from You

Sometimes we want to be transactional, but you have to remember that your seller is a human being that has emotions, likes, dislikes, wants and needs. Often when entering into a conversation with a seller, especially the first or second conversations, you have an agenda or a pitch that you would like to push upon the seller.

You want more seller financing or a lower interest rate. Or you want to keep the company’s cash and account receivables post-closing.

If you hold to your rigid agenda in conversation, you may be missing key signs that your seller is showing you.

These signs, if ignored, may be the reason the seller gets all the way to the closing table and decides not to close.

“It’s not all of a sudden, [the seller] was sending you signals throughout the entire interaction that you deliberately ignored.”

Your seller may be afraid of their friend’s perception of them after they sell or afraid of the tax implications…and these are the true motivations behind them not wanting to sign. But more than likely they will mention these things casually or you will have to pull it out of them after recognizing the clues.

Gaunt says that you’re “going to see the signs and when you do, don’t ignore them.” Acknowledge them because people sometimes “have a hard time articulating what's going on with them on their side of the table. And so, they don't always say it, but it'll manifest itself in other ways.”

Maybe they are shaking their head, folding their arms, or slouching in their seat while you go over key points of the contract. These are signs you cannot ignore as they may lead to the deal falling through.

They are “looking for you to pick up on [their] red flags,” many of which they may not verbally express.

TACTICAL EMPATHY, THE KEY TO UNLOCKING YOUR SELLER’S SECRETS

Tactical Empathy is the art of not only recognizing the perspective of your counterpart on the other side of the deal but articulating that recognition.

You have to be able to identify what your seller is feeling and not force your thoughts on them.

“People will tell you exactly where they're trying to go and what they're trying to achieve. Even if the words never come out of their mouth.”

Tactical empathy is the key to unlocking the door to these secrets.

Tactical empathy will allow you to hear the clues you’ll need to uncover what your seller may be hiding from you.

The deepest level of listening within this framework, Gaunt calls emphatic listening, where you are listening for key drivers in decision-making such as “emotional, logic, or identity issues” and, more importantly, what those drivers symbolize for your seller. These are the seller’s motivations behind what they may not be saying.

If they say they don’t like a particular item on the contract, you need to emphatically listen for the why, this may be a direct result of a deeper emotional, logic, or identity issue.

And not all reasons are created equally…their reasoning may be silly to you, but you must take it seriously.

Sellers desperately want you to uncover their secrets, but if you’re not listening, you will miss them.

A key secret of your deal is hidden behind a “no”

Your seller is hiding a key secret about their business behind the word “no” says Gaunt.

“No is always camouflaging something else. There's always something else behind the No...always look for motivation, motivation, motivation.”

But if you are not employing tactical empathy, you will not only miss the seller’s true intentions, but may also miss the opportunity to close the deal.

“When people tell you no, it's never about the money. It's never about the terms. It's always about what they stand to lose.”

Seven Steps to employing tactical empathy in M&A Deals

Below are seven steps to employing tactical empathy in your Mergers and Acquisition transactions.

1.     Stay Curious.

Gaunt’s number one way to employ tactical empathy in M&A is to stay curious throughout your interactions with the seller. Keep asking questions. Go down the rabbit hole if the conversation leads you that way. There may be an item of discussion that is outside of your agenda but is more advantageous to discuss in that moment because it may uncover some information your seller is unintentionally hiding from you.

2.     If you can control the environment, you shouldn't go into conversations with a seller by yourself.

Gaunt repeated this theme from the acclaimed book Never Split the Difference: Negotiating As If Your Life Depended On It by Chris Voss (you can get it here on Amazon) because most people miss things in conversation while talking “That secondary person is there primarily to pick up the things that are important that you may have missed.” These missed items may be clues to a hidden motivation.

 I personally employ this method on every pre-closing site visit I have with my sellers. If you’re a solopreneur or just starting out on your first or second deal and don’t have an executive officer, you can bring your CPA or retain a buy-side broker to bring with you. If you’re on a budget, treat them to lunch afterwards to compensate them for their time. They may hear recurring themes that you missed while talking that can uncover some secrets your seller is hiding from you.

3.     Question any statement or question that seems out of place or doesn’t make sense.

There is a valid reason they randomly asked you what do you like to do in your spare time? Gaunt suggests that before responding to a question or statement that doesn’t make sense or seems out of place, ask yourself, “Why did he just say that? Why did she just do that?”

These questions, he says, imply that there is a “need or a want” coming from the other side of the table. So, you should always be ready to figure out where that statement comes from.

4.     Notice the red flags your Seller is waving and acknowledge them.

Gaunt suggests giving them a chance to explain. “We all have this almost insatiable desire to have somebody else understand what position we're in and what we're going through.”

5.     Don’t use “What and How” questions when uncovering information until you have empathically listened to them.

 Gaunt shared that in conversations you must discuss negative pressing issues that are on their mind first (these are red flags they are waving), then follow up with your What/How questions.  

6.     Most sellers that “ghost” you don’t do it maliciously, they just don’t know how to say no. Here’s a tip to uncover this hidden information.

If a seller has “ghosted” you on a deal, send a subject line only email without anything in the body of the email to uncover their hidden intentions. An example of such a subject line would be “So I take it, you've given up on selling your business. Right?”

After sending such an email, he cautions not to send it unless you are ready to talk immediately, as it is designed to generate a quick response.

7.     Your first call to a seller should be your first demonstration of tactical empathy.

Your first call to a seller shouldn’t involve a pitch at all. It should be a “curiosity” call where you are gathering information. The call should only be about 30 minutes. Afterwards, Gaunt suggests that you “thank them for their time” and promptly disconnect the call. He says that this will immediately initiate the “fear of missing out” on them and cause you to stand out from their other suitors. You should then call within the next week or two for a more substantive conversation.

Shameless Plug

We hope you enjoyed this article; you can watch the full interview between Ronald Skelton & Derek Gaunt here.

You can find Derek Gaunt’s book Ego, Authority, Failure on Amazon here. You can also find more information regarding the Black Swan Group and their frequent live events here.

About the Author, @SkipTheStartup

The author has a small business M&A TikTok channel called @SkipTheStartup where he discusses topics such as Seller Financing, Negotiation, and how to do small business M&A deals. Along with real estate investing, he has successfully closed multiple small business M&A transactions.