Thursday, October 18, 2012

Closing the Deal

Closing the Deal

Instead of watching the Presidential debates as voters with an interest in the outcome of the election, I recommend that you watch a replay of the debates as if they were part of a private equity deal.  I think you’ll come to appreciate that Governor Romney is a master at closing a transaction.  I am not commenting on whether the Governor’s skills are appropriate to the functions of the Presidency or onthe accuracy or inaccuracy of his statements.  It’s for you to judge the relative merits of President Obama’s and Governor Romney’s candidacies.

Real Estate Deals (2005)

The Governor is steeped in the art of the deal, and you are seeing that expertise on display in this campaign.   Typically a deal begins when a company decides to sell and asks interested parties to make indicative bids.  Think of the indicative bid like the election primary.  The goal of the indicative bid is to say enough so that you’ll be invited to the next round of bidding and get a chance to perform detailed due diligence.  However, you don’t want to say too much, because you want to avoid locking yourself into fixed positions at this preliminary point in the deal process. If you go back to the primary season, you’ll see Governor Romney deftly navigate the primary season with a series of nuanced statements designed to pick off his rivals one-by-one, while subtly shaping his position on issues like immigration to suit the sensibilities of Floridians or Arizonans.  The Governor did what it took to get to the next round of the campaign.

Today we’re now down to the final bidders, Romney and Obama, and Romney is relying on the skills that made him so successful in private equity.   He is going to say what he needs to say in order to get the deal done.  In the world of private equity and finance this is not pandering.  This is business.  After investing months and months on due diligence and protracted negotiations, it is time to close the deal.    We’re at the point where the private equity partner (Romney) is sitting in front of the board of directors and management of the target company (voters), and his mission is to say and promise whatever is necessary to get the board to approve the deal. 

When I was at NationsBank, I watched the bank’s management promise that they’d keep certain executives and operations after a merger.  Within weeks of closing the deal, those promises were forgotten, those executives were gone, and the target bank’s divisions were consolidated into NationsBank’s operations.  I watched my private equity and real estate clients use the same tactics with boards, regulators, and bankers.  They’d say whatever needed saying to close the deal.  Once they owned the business, it was a new day, and they’d come up with the required rationale to step away from their promises. I played this game myself on numerous occasions, because that’s how the business works.  Acquiring a business is a process of seduction, and it seldom ends in a happy marriage.

In this election, we are seeing a master at this art.  Governor Romney speaks with a high level of conviction, he looks you in the eye, and he delivers a concise message designed to move voters.  If these tactics work with directors and corporate executives, there’s no reason to believe that they won’t work with voters.  If the election were a private equity deal, these tactics would have few consequences.  Bain Capital would have total control of the target company and be free to break any and all prior promises in order to make money on the deal.  The Governor’s problem, should he win, is that we operate under a divided government and with a system that privately finances campaigns.  The politicians and the donors won’t permit the Governor to have private equity-like control.  There will be Senate and House leaders and a variety of constituencies who financed his campaign; they will hold him to account for his promises to them. 

President Obama is very capable when it comes to debates, and he’s trying to close the deal as well.  His performance in the first debate wasn’t nearly as bad as the pundits described it.  However, no matter how well the President performs, I don’t think he can compete with a private equity executive who has decades of experience saying whatever is needed in order to close a deal.  Governor Romney’s just that good.

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