The five P’s of deal preparation
“If I had a little humility, I would be perfect.” - Ted Turner
The 5 P’s, “Prior Preparation Prevents Poor Performance” reminds dealmakers that poor deal preparation can prove disastrous.
In July, 1985 Kirk Kerkorian, the head of MGM and United Artists called Ted Turner, the owner of Turner Broadcasting Services with an offer to sell him MGM/UA. Kerkorian told Turner he was going to put MGM/UA up for auction in two weeks, but Turner could have the company if he paid $1.5 billion - and closed the deal by August 8.
Turner desperately wanted MGM/UA films to give him control of his programming, so he sent 40 lawyers and accountants to go over the books. Then, two days before the deadline, and without any negotiation on the price, Turner signed a purchase agreement.
Analysts say he overpaid by $200 to $300 million.
Plus, he ignored that MGM was in a bad state producing a raft of poor money losing films. To boot, his lawyers failed to ask what legal commitments MGM had made. Turner did not uncover that on August 4, MGM/UA had signed a contract locking up all cable rights and that HBO had already contracted to buy several MGM movies at low prices.
Turner may have been a visionary entrepreneur but he proved an amateur dealmaker.
Poor preparation causes us to make unwise assumptions, since assumptions are the mother of all stuff-ups.
When you’re desperate to do a deal and under time pressure remember the 5P’s: Poor Preparation Prevents Poor Performance.
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