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Negotiating and Closing the Partnership Agreement

Written by: Sarah Gerdes

Article Overview: After the partner development work has been completed, and before the revenue starts rolling in, agreements that formalize a relationship between parties must be completed. If you have completed the last step in the partner development process—the technical due diligence—then this is a natural outcome. Believe it or not, fatal mistakes (the kind that cost you the company) are rarely made at the agreement phase. They are simply the most visible and costly. This article identifies the typical process followed to create an agreement, the players, their roles and tips on accelerating the agreement phase.

Negotiating and Closing the Partnership Agreement

After the partner development work has been completed, and before the revenue starts rolling in, agreements that formalize a relationship between parties must be completed. If you have completed the last step in the partner development process—the technical due diligence—then this is a natural outcome. Believe it or not, fatal mistakes (the kind that cost you the company) are rarely made at the agreement phase. They are simply the most visible and costly. This article identifies a few of the terms and conditions designed to prevent a mistake being made during the agreement phase, as well as incentives and penalties that can ensure high revenue or an “out” of the contract should it not meet objectives.

The Agreement Checklist

Before you head to the negotiation table, ask yourself if you have a clear understanding of the following agreement process points:
• Do you know the people involved to do the deal?
• Do you know the roles of the individuals?
• Has the process of how the negotiation will be conducted been explained?
• Do you have internal consensus on the general terms of the agreement

If you can answer yes to the above questions, then you are well ahead of the curve. Most companies go into negotiation blind. They have no clue about the process, who is involved or what can be expected. Worse still, they haven’t bothered to get unity on the components of the agreement from management—often waiting to do this at the very end.

The reason for using one over the other is based on the level of commitment by both parties. Non-legally binding documents are typically signed before the technical due diligence process. This ensures all parties that they are working towards a common outcome. Legally binding agreements are signed after the diligence is completed—as a monetary value has usually been established by that time.

Participants and their Roles
The players involved in the process correlate with the type and significance of the agreement. Attorneys may or may not get involved in the first type of documents, while attorneys, corporate development and other executives most assuredly will participate in the latter. Corporate development (also known as mergers and acquisitions) is usually involved if the agreement includes a monetary investment in a firm, or if the agreement has components of an acquisition. Simply by identifying WHO will be involved in the process will tell you a great deal about the (long term and short term) intent of the partner.

The roles of the individuals involved vary tremendously during the negotiation process. Initially, a product team will work with you to get agreement on the general intent of the partnership. Then it will go to corporate development group to negotiate the best deal. Then the agreement will go to the attorneys to put legalese around the terms, thereby negotiating an even better deal for their side. Then it goes to the executive, who must bless it. Think about it like a game in which the other team is able to put in their best point players for each situation.

The logic behind this scenario is to
a) keep individuals focused on a particular task while
b) removing any emotion or desire the original partner manager might have to be nice/soft/sensitive to the needs of your company.

Seeing it from this perspective, it’s no wonder that people who represent their own firms are their own worst negotiator. They are too invested in the hours, days, and months of the relationship to let it go up in smoke at the last minute.

Negotiation Baselines
If you are to succeed, forget the good guy bad guy thing. Match tone for tone with your potential partner, provide the voice of reason relative to the “intent” of the relationship and steer all parties to the destination that you and your peer at the other firm have pre-determined. This is the real skill when negotiating and closing the deal.

Remember to:

• Keep the parties focused on the original intent
• Drive the attorneys to create language to fit the situation, not the other way around
• Set expectations with management on the perimeters of the relationship before the deal negotiation starts (i.e., the firm you are working with is public and has to abide by certain ownership percentages etc)
• Ensure your internal supporting network is aware of the facts, but not overburdened by detail

Behavioral Management
A large part of succeeding during this phase is accurately anticipating and managing the behavior of the parties involved. If you can embody just a few of the following attributes, the process will have a far greater chance of succeeding. It will also be much more constructive—therefore immediately productive—sooner.

• Seek first to understand (what did they mean when they asked for that term? What was the intent? Most people react first then think logically—and by then it’s too late)
• Have no fear of asking the question (what do you really want the press release to say? This will result in failure.
• Fear of giving a proposal will result in failure (I’m afraid to go first because my price might be too high or too low. Look out on the edge and jump. Somebody has to).

Anticipating behavioral issues can be aided if you spend some time with your partner counterpart to get some negotiation background on how things are done. Specifically,

• Will they change; have they demonstrated flexibility in the past?
• Structure flexibility in regards to the type of agreement (investment versus joint development)
• Expectations for timeframe, monetary exchange and the like
• How do they measure success, and will this be included in the contract?
• What other relationships have they created of this type?
• What is the satisfaction rating?
• What were the communications processes?
• How were conflicts resolved?

Signing a mutually beneficial agreement is much more than simply being a whiz at the proverbial negotiation table. It is about understanding as much about the environment of the PPO upfront as possible. It includes a lot of expectation setting with individuals that have a specific, focused job to do. Finally, it takes the stringent management of yourself, the partner manager, to guide the process to make sure the intent of the entire effort is congruent with the agreement on the back-end.

More information on structuring partnership agreements can be found in Chapter 8 of Navigating the Partnership Maze: Creating Alliances that Work (McGraw-Hill 2002).

Related Articles
  Writing a Partnership Agreement for Joint Ventures
  Partnerships - Some of the basics
  Sales Agreement
  Sales Agreement
  ESCALATION AS A NEGOTIATION STRATEGY

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