Chapter 1

Introduction 1

Why Another Negotiating Book? 1

Dealmaking™ 3

High Significance, High Ambiguity Contexts 4

The “So What?” Question 8

Valuation, Pricing, and Negotiation 8

Tangible and Intangible Content/Value and the New Economy 9

The I Dealmaking Process 10

Organization of the Book 13

Chapter 2

Negotiation People, Language, and Frameworks 15

Negotiation People 15

A Quest 21

The Nut, the Number, the Bogie, and the Toe Tag 23

Quantification, Rationality, and Hyperrationality 24

Chapter 3

The Box and the Wheelbarrow: What Am I Selling (or Buying)? 31

The Box 31

The Wheelbarrow 36

Dealmaking’s Spine 41

The Term Sheet 42

Methods and Tools 42

Chapter 4

Discounted Cash Flow Analysis and Introduction to Monte Carlo Modeling 45

Discounted Cash Flow Analysis 45

Scenario (DCF) Analysis 50

Monte Carlo Method: An Introduction 64

Closure and Application to Negotiation 72

Chapter 5

Monte Carlo Method 77

A Model Cash Flow Template 78

Income and Cash Flow Statements: 3M Example 79

Monte Carlo Assumption Tools 91

Uniform Distribution: Highest Uncertainty Between Certain Bounds 91

Triangular Distribution 94

The Normal Distribution 97

Other Distribution Functions 100

Monte Carlo Model of the DCF Template 102

Combined CAGR and Cost Ratio Uncertainty Distributions 102

Correlating Assumptions 105

Additional Assumption Distributions 107

Twentieth (and Other) Percentile Valuations 108

Comparison of Monte Carlo Results with DCF (RAHR) Method 114

Scenario Modeling in Monte Carlo 115

Monte Carlo Tools for Determining Variable Significance 120

Final Points on the Monte Carlo Model 121

Appendix 5A: Crystal Ball Report Corresponding to the Results Presented in Exhibit
5.15 for a Uniform Cost Distribution Assumption 126

Appendix 5B: Crystal Ball Report Corresponding to the Results Presented in Exhibit
5.16 for a Double-Humped Cost Distribution Assumption 135

Chapter 6

Introduction to Real Options 147

Perspective 1: Discounted Cash Flow (DCF) View of the Six-Scenario Opportunity 148

Perspective 2: Real Option View of the Six-Scenario Opportunity 151

Perspective 3: A Model for a Buyer’s Counteroffer 154

Black-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?” 161

Using Black-Scholes for an Opportunity Valuation 167

Summary of Real Option Realities versus Black-Scholes 171

Chapter 7

Real Options Applied to Dealmaking 175

Beyond Black-Scholes 177

Emergence of Real Options Analysis 179

Introducing the Binomial Lattice for Real Options 186

Calculating Option Values from Binomial Matrices 192

Calculating Option Values Using Decisioneering’s Real Options Analysis Toolkit 196

Using Real Options Analysis Toolkit Software in Dealmaking 201

Calculating (or Estimating) Option Volatility 204

Calculating the Option Value of Options on Options 210

Conclusions and Observations 212

Appendix 7A: Real Options Equations 215

Chapter 8

Knowledge and Unertainty 219

Future Knowledge 219

Dealing with Uncertainty 221

Standards 226

What About Truth? 229

Chapter 9

Deal Pricing 233

Simple Pricing 233

Box Pricing 235

Wheelbarrow Pricing 236

Total Cash Payment 236

Cash When 239

Cash Maybe 239

Cash As 240

Cash Substitutes 240

Term Sheets 241

Chapter 10

Negotiation Perspectives and Dynamics 243

Negotiation Perspectives 243

Negotiating Sequencing 246

Issue Explosion 249

Negotiating Values 252

Deal/Agreement Complexity 252

Chapter 11

Plan B 255

Auctions and Betrothals 255

Plan B Analysis and Tools 257

Plan B Implementation 265

Plan B Caution 266

Plan B from the Buyer’s Perspective 267

Plan B and Life 267

Chapter 12

Conclusion 273

In Theory, In Practice 273

Value Creation by Dealmaking 274

A Final (True) Story 278

Bibliography 281

Index 283?