Sunday, January 15, 2012

A Deal Is Not a Deal Until the Money is in the Bank

I should not be amazed but the commentary by self proclaimed "experts" is amazing. Some writer for the Washington Post under the headline "Bain's Dishonest Deals" and becomes "When Romney ran Bain Capital, his word was not his bond", states:

Here’s how it worked. Private-equity firms are always eager to find companies to buy, allowing them to invest chunks of the billions of dollars entrusted to them and from which they earn hundreds of millions in fees. One ready source of these businesses is Wall Street bankers hired to sell companies through private auctions. The good news is that when a banker puts together a detailed selling memorandum about a company, chances are very high that company will be sold; the bad news is that these private auctions tend to be very competitive, and the winning bidder, by definition, is most often the one willing to pay the most. By paying the highest price, you win the company, but you also may reduce the returns you can generate for your investors.

But for anyone who has ever really done a deal we all know that "A deal is not a deal until the money is in the bank, for a week!"  Deal get renegotiated all the time, the fail to reach completion for hundreds of reasons, agreements are abandoned for frustration of purpose, material adverse changes occur and so forth.

One always finds problems, and often they are fatal. Thus the assumption that a deal is done on a hand shake is naive at best. Negotiations are just that, negotiations. In some places a contract is considered just the start of negotiations, I had found that out the hard way in Asia.

Thus as my daughter tells her fourth grade class, "A deal is not a deal ...", even they know, and these children may be better prepared to deal with reality than some opinion writers. But after all it is just the Post!