A new book shows how to manage (or even exit) long-term deals without affecting profits and growth
An excerpt from ‘Deals: The Economic Structure of Business Transactions’, by Michael Klausne and Guhan Subramanian.
In some situations, partners in a deal involving an asset- or relationship-specific investment can foresee the possibility that no third party will buy the interest of either partner if one chooses to exit – at least not at a price that reflects the value of the partner’s interest. This means the partners will have only each other as potential buyers, as in the case of the Inquirer. In this scenario, the partners need to consider how much assurance each can give the other that a buyout will occur, and how the price of a departing partner’s interest will be set. There are a few contractual mechanisms that address these issues, but with any of them, the solvency and liquidity of the parties at the time of a sale will influence their effectiveness.
One approach to an interparty sale is simply to provide in a contract that, if one party wants to sell its interest to the other, the parties will “negotiate in good faith” or “consider an offer in good faith.” When the time comes for a sale, however, the parties may well have different views regarding what constitutes good faith – and different views on how much value should be placed on each other’s interest...
