Dealmaking

RICHARD RAZGAITIS is a managing director at InteCap, Inc. A recognized leader in the field of licensing and valuation, he has over twenty-five years of experience working with the development, commercialization, and strategic management of technology, seventeen of which have involved the commercialization of intellectual property.

• Chapter 1Introduction 1Why Another Negotiating Book? 1Dealmaking™ 3High Significance, High Ambiguity Contexts 4The “So What?” Question 8Valuation, Pricing, and Negotiation 8Tangible and Intangible Content/Value and the New Economy 9The I Dealmaking Process 10Organization of the Book 13Chapter 2Negotiation People, Language, and Frameworks 15Negotiation People 15A Quest 21The Nut, the Number, the Bogie, and the Toe Tag 23Quantification, Rationality, and Hyperrationality 24Chapter 3The Box and the Wheelbarrow: What Am I Selling (or Buying)? 31The Box 31The Wheelbarrow 36Dealmaking’s Spine 41The Term Sheet 42Methods and Tools 42Chapter 4Discounted Cash Flow Analysis and Introduction to Monte Carlo Modeling 45Discounted Cash Flow Analysis 45Scenario (DCF) Analysis 50Monte Carlo Method: An Introduction 64Closure and Application to Negotiation 72Chapter 5Monte Carlo Method 77A Model Cash Flow Template 78Income and Cash Flow Statements: 3M Example 79Monte Carlo Assumption Tools 91Uniform Distribution: Highest Uncertainty Between Certain Bounds 91Triangular Distribution 94The Normal Distribution 97Other Distribution Functions 100Monte Carlo Model of the DCF Template 102Combined CAGR and Cost Ratio Uncertainty Distributions 102Correlating Assumptions 105Additional Assumption Distributions 107Twentieth (and Other) Percentile Valuations 108Comparison of Monte Carlo Results with DCF (RAHR) Method 114Scenario Modeling in Monte Carlo 115Monte Carlo Tools for Determining Variable Significance 120Final Points on the Monte Carlo Model 121Appendix 5A: Crystal Ball Report Corresponding to the Results Presented in Exhibit 5.15 for a Uniform Cost Distribution Assumption 126Appendix 5B: Crystal Ball Report Corresponding to the Results Presented in Exhibit 5.16 for a Double-Humped Cost Distribution Assumption 135Chapter 6Introduction to Real Options 147Perspective 1: Discounted Cash Flow (DCF) View of the Six-Scenario Opportunity 148Perspective 2: Real Option View of the Six-Scenario Opportunity 151Perspective 3: A Model for a Buyer’s Counteroffer 154Black-Scholes Equation for Option Pricing 156 The Black-Scholes Equation Applied to an Option to a Share of Yahoo! 157 What Do Equations Represent? “What Is Truth?” 161Using Black-Scholes for an Opportunity Valuation 167Summary of Real Option Realities versus Black-Scholes 171Chapter 7Real Options Applied to Dealmaking 175Beyond Black-Scholes 177Emergence of Real Options Analysis 179Introducing the Binomial Lattice for Real Options 186Calculating Option Values from Binomial Matrices 192Calculating Option Values Using Decisioneering’s Real Options Analysis Toolkit 196Using Real Options Analysis Toolkit Software in Dealmaking 201Calculating (or Estimating) Option Volatility 204Calculating the Option Value of Options on Options 210Conclusions and Observations 212Appendix 7A: Real Options Equations 215Chapter 8Knowledge and Unertainty 219Future Knowledge 219Dealing with Uncertainty 221Standards 226What About Truth? 229Chapter 9Deal Pricing 233Simple Pricing 233Box Pricing 235Wheelbarrow Pricing 236 Total Cash Payment 236 Cash When 239 Cash Maybe 239 Cash As 240 Cash Substitutes 240Term Sheets 241Chapter 10Negotiation Perspectives and Dynamics 243Negotiation Perspectives 243Negotiating Sequencing 246Issue Explosion 249Negotiating Values 252Deal/Agreement Complexity 252Chapter 11Plan B 255Auctions and Betrothals 255Plan B Analysis and Tools 257Plan B Implementation 265Plan B Caution 266Plan B from the Buyer’s Perspective 267Plan B and Life 267Chapter 12Conclusion 273In Theory, In Practice 273Value Creation by Dealmaking 274A Final (True) Story 278Bibliography 281Index 283