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Negotiauctions: New Dealmaking Strategies for a Competitive Marketplace
Bringing together auction theory and negotiation theory in a practical and accessible way, here is an authoritative guide to negotiating deals. Today’s increasingly competitive marketplace is filled with business transactions that include elements of both negotiations and auctions, yet the received wisdom on deal-making treats these two mechanisms separately. Leading dealmaking scholar Guhan Subramanian explores the ubiquitous situation in which negotiators are “fighting on two fronts”―across the table, of course, but also on the same side of the table with known, unknown, or possible competitors. Delving into case studies as diverse as buying a house, haggling over the rights to the television show Frasier , and selling “toxic” assets into the U.S. government’s bailout fund, Subramanian combines meticulous research, field experience, and classroom-tested strategies to create an indispensable guide for anyone involved in buying or selling everything from cars to corporations. charts
256 pages, Hardcover
First published January 1, 2010
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Displaying 1 - 6 of 6 reviews
January 27, 2022
A relatively decent book on dealmaking. The thesis is that many transactions are actually a mix of both negotiations and auctions instead of a pure negotiation or auction. That interplay allows some creative transactional structures, and depending on the situation, the seller should structure it more like a negotiation (when there are few bidders, valuations vary, and many value creation opportunities) or like an auction (many bidders, asset is clearly defined/commodified). By putting same side table pressure (auction), the seller can encourage bidding that could return a better price (sometimes even pretending like there are more bidders than there are), or across the table tactics the seller can exact more value. There is a basic discussion of different types of auctions (sealed bid, open outcry) and the theoretical predictions (second bid sealed auctions encourage no shading of the bid, winner's curse where one end up holding the bag, not realizing that everyone else's valuation was much lower, the tendency for experts to snipe to avoid freeriding). The book also goes through the basics of negotiation including the colorfully named BATNA, ZOPA, reservation price, all pay outcomes. A key idea is the "negotiator's dilemma" where revealing one's information could lead to better value deals, but at the same time gives the other side a weapon to extract value (a classic prisoner's dilemma that is resolved if the chances of the deal closing rise as the value of the deal rises).
The book then argues that pure theories of auction and negotiations don't work because deals are often dynamic and can change between the two forms at different times. Then the author suggests that in light of that reality there are three major themes to consider. The first is that from the process taker's perspective, it often offers value to the seller that the buyer is participating at all, so often the buyer can extract concessions as the price of participating (either in process forms etc). The second is that buyers can often increase the value by combining or splitting parts of the deal amongst themselves (mostly because they have different valuations). From the process setter's perspective that sometimes means encouraging buyers to consult with each other if the valuations are uncertain so that they can find value and pay more as a result or to keep buyers separate to prevent buyer power. The final point the book makes is that often by making a credible threat of leaving the table, the buyer can extract value by pre-maturely shutting down bidding.
The book has a few examples of deals that illustrates the points nicely. I really enjoyed two stories in particular, one where the seller created the impression of strong buyer interest by restricting the times a buyer could visit the data room for due diligence (and then leaving empty take out boxes before their arrival) or a buyer telling the sole bidder that their bid was the lowest. The author includes a chapter discussing some of the legal implications (most of those tactics are not illegal because there was no lying, strictly speaking, and combining buyer power is mostly legal if the purpose is to efficiently allocate assets to higher valued uses).
The book then argues that pure theories of auction and negotiations don't work because deals are often dynamic and can change between the two forms at different times. Then the author suggests that in light of that reality there are three major themes to consider. The first is that from the process taker's perspective, it often offers value to the seller that the buyer is participating at all, so often the buyer can extract concessions as the price of participating (either in process forms etc). The second is that buyers can often increase the value by combining or splitting parts of the deal amongst themselves (mostly because they have different valuations). From the process setter's perspective that sometimes means encouraging buyers to consult with each other if the valuations are uncertain so that they can find value and pay more as a result or to keep buyers separate to prevent buyer power. The final point the book makes is that often by making a credible threat of leaving the table, the buyer can extract value by pre-maturely shutting down bidding.
The book has a few examples of deals that illustrates the points nicely. I really enjoyed two stories in particular, one where the seller created the impression of strong buyer interest by restricting the times a buyer could visit the data room for due diligence (and then leaving empty take out boxes before their arrival) or a buyer telling the sole bidder that their bid was the lowest. The author includes a chapter discussing some of the legal implications (most of those tactics are not illegal because there was no lying, strictly speaking, and combining buyer power is mostly legal if the purpose is to efficiently allocate assets to higher valued uses).
June 3, 2017
As someone who is not interested in finance or business, this book was very dry. I liked the anecdotes and real life examples, but I found this hard to get through.
July 21, 2021
This book covers both the theoretical and practical applications of negotiauctions and ties it together in an easily readable format.
July 6, 2010
This is an excellent book, and I think it brings an important new perspective to the negotiation literature. As with his oral lectures, Subramanian packs in a lot of information into a small amount of text. You have to read it slowly at times, and page back to other sections. But he provides some excellent examples and illustrations of the concepts.
July 22, 2015
Excellent book on auctions, negotiations, and combing the2. Draws on the "theoretical" side, the reality of how these scenarios play out, and touches on legal implications of certain moves. Strongly recommended.
Displaying 1 - 6 of 6 reviews