Are the pressures we have been discussing making it much more expensive to negotiate a deal?
Altomari: Due diligence has to be conducted more carefully, and the costs are escalating. The value proposition has to be identified
and laid out much earlier. IP issues have to be vetted across a wider geographic circle. Partners want more from validation
studies. By the time you get to the final negotiations, the commitments amount to big money because the bottom line is you
have to try to demonstrate certainty around the asset.
Isabelle Trempe, Paladin Labs Canada: Paladin is starting to do more deals internationally. To be successful, you must invest in relationships. This is particularly
true in emerging markets, where being on the ground, face to face, over a long period of pre-engagment, is a prerequisite
for negotiation. Management often fails to see this as an investment, not a cost.
What are the most critical factors that account for the failure to consummate a deal? What might you do in hindsight to put
things back on course?
Dunn: The biggest smoking gun is the different perceptions of the buyer and seller about valuation of the asset. Much of this is
not well understood and parties fail to explain their motivations as to why they are at the negotiation table in the first
place. The only remedy is to require the parties—at a relatively early stage—to agree on the assumptions that will drive the
valuation. It's better to know sooner rather than later if you are not playing in the same ballpark.
Altomari: You will want to do everything you can to quantify the risk involved in transfer of the asset. Structure the risk into the
Stewart: All deals today have to acknowledge the high level of uncertainty around regulatory approvals. Both parties must be on the
same page here. We hear from our clients that regulatory uncertainty in Europe is killing valuations, yet parties may look
no further than the FDA in assessing their approval risk exposure.
Blumberg: Matching cultures and building relationships is integral to commerce. Numbers are important but the people factor overrides
all. Deals are akin to a marriage—the intent is for the relationship to be intimate and long-term. What is interesting is
that negotiation alone can reveal whether the long-term match is right. If you can't agree about how to work through differences,
then what happens when you really have one, post closing? The challenge of maximizing the trust factor is becoming harder
now that the deal making circle is widening to include China and other emerging markets. How to get things done in these different
business cultures is a puzzle.