The Art of the Deal

People, not numbers in a financial plan or words in a legal document, are what make deals happen.

BY MARGOT M. MICALLEF, Q.C.

I love the art of the deal. I love the beginning: from the point of conception of the idea, to the initial awkward overtures. I love the middle: the dance that begins with the start of negotiations when both sides realize a deal can and should happen. I love the end: the euphoria of success and the anticipation of the future marked by the closing celebration. I love every intense, emotionally undulating aspect of it. And I’m fortunate. I’ve been able to participate in billions of dollars worth of transactions over the last 25 years.

It all starts with courage however, for the most satisfying deals are often those that pundits say won’t happen. The acquisition by Shaw Communications Inc. of WIC Western International Communications was such a deal. WIC, as it was called, was a successful radio and television broadcaster that had a dual class of shares, voting shares controlled by the Griffiths family of Vancouver, and non-voting shares which were publically traded and widely held.

Following the passing of WIC’s founder and patriarch, Frank Griffiths, the family decided to sell its controlling interest. Shaw was interested in buying the company but we first had to agree on the terms by which we would purchase Mrs. Griffiths’ voting shares.

I was a senior vice-president of Shaw at the time. Along with CEO Jim Shaw, I was charged with moving the deal forward. Unfortunately there was a lot of controversy at that time around valuing voting shares in a dual class structure and there was case law that said you couldn’t pay more for a class of voting shares than for a class of non-voting shares.

But to pay the same price for the non-voting shares as what Mrs. Griffiths was asking would render the deal uneconomic.We sought legal advice and were told there was no way to proceed and that we would be sanctioned by the securities regulators if we tried.

I remember going into Jim Shaw’s office to give him the news. I had a knot in my stomach. After listening to me Jim asked me what I wanted to do. I told him I wanted a second opinion. And with the courage with which he led every aspect of the WIC acquisition, Jim supported my request. After consulting another law firm we agreed that in fact there was a way to proceed. It wasn’t without risk, but we felt it would violate neither the spirit nor letter of the law. We were right. The result was that we created new law that today governs mergers and acquisitions in Canada.

The WIC deal transformed Shaw by moving Shaw into content, dramatically expanded Shaw’s size and scope, and put us on the national stage as a major contender.The WIC deal ultimately gave birth to Shaw’s sister company Corus Entertainment.

Years later, after I established Oliver Capital Partners, I was again involved in a deal that showed me that with faith and courage anything is possible.

A small group of us realized there was an opportunity to consolidate independent radio stations. The challenge was we had neither radio stations to buy nor enough money with which to buy them. Nonetheless, we ventured forth simultaneously, negotiating with the owners of radio stations and prospective investors. We initially approached private equity firms who liked our business plan but who could not overcome the “execution risk” associated with the possibility that we may never actually complete a single acquisition of a radio station, nor achieve the valuations we were contemplating. We of course had no such fear. We unequivocally believed we would succeed however and stubbornly soldiered on.

Our passion led a handful of investors, led by Ron Joyce (co-founder of Tim Hortons), to believe in us despite being told by another prospective investor that “the numbers didn’t work.” Ron and our other investors understood the big picture and believed in the people behind the deal.They provided the capital to help us buy initially one radio station, then ultimately 18 more. Within nine months Vista Radio was born. Since then, we’ve grown to 25 stations in Western Canada, with above average EBITDA margins and a culture that enables us to attract the best employees in the broadcast industry.

So why is it that we succeeded when others thought we would fail? And why did some investors embrace us when others did not?

We succeeded primarily because we and they understood that the art of the deal is all about the people. This is where reputation and integrity matters. Often investment bankers and accountants focus too much on the numbers, and lawyers too much on the words. Of course, these aspects are important but until you build trust with the person on the other side of the table, these aspects are unimportant.

I recall when I was a young lawyer, a seasoned deal-maker said to me that the biggest mistake people make in deals is that they spend, “too much time looking at the paper and not enough time looking into the eyes of the person on the other side of the table.”

Building trust means listening and understanding what the other person needs.We often think that all that matters in a deal are the financial terms. That is rarely the case. Most entrepreneurs who have spent years building their business are reluctant to sell it to a buyer who will disregard the whole for the sake of the parts: even if it means eliciting a higher price than would be the case from someone who intends to keep the business intact. Others have so much of their ego and self esteem built into their business that selling their business is like a death sentence. In this case, it’s important to find an ongoing, albeit unobtrusive, role or the seller to play. Likewise, in financing it’s important to appreciate that banks don’t lend to companies and investors don’t invest in deals. Rather, both lend or invest in people. As one investor once told me, “the numbers always look good; the people make the difference.”

When we were building Vista Radio we were successful in acquiring a group of radio stations from a woman who had been pursued by prospective buyers for over ten years. Many of these buyers had deeper pockets than we did and all were astonished when we came out as the successful buyers.

The difference between us and these other bidders is that we took the time to get to know the seller. I spent many visits just talking with her about her radio stations, about what it was like for her after her husband died and what she would do after she sold.

After each visit she became more and more comfortable with me. I knew we had made progress when she offered me homemade wine from the mini fridge in her office. Finally, several visits later over jug wine from the local liquor store, we clinked our plastic wine glasses and had a deal.

I like the challenge of doing deals that others don’t believe are do-able, not only because I’m stubborn, but also because it usually allows me to buy well. If the deal is easy, everyone is eager to buy and that demand increases the price.

Doing challenging deals requires courage and looking at things from the perspective of the other person. Empathy necessitates good listening skills to understand the true message. Empathy allows you to craft the deal and to use your creativity to move from conception to closing.

In between, you need a healthy dose of tenacity to keep you on track. These are skills that are often second nature to women. In making courageous decisions to venture forth where others fear to tread, I am guided by my belief in the reasonableness of people, in the value of long-term thinking, and in knowing that this is not my last deal.

Margot M. Micallef, Q.C. is the founder and President of Oliver Capital Partners Inc., an M&A Advisory and Private Equity Boutique which since inception in 2003 has invested in radio broadcasting, publishing, fast food and food manufacturing. Margot sits on a number of public and private company boards and is an adjunct professor in the MBA Program at the University of Alberta. Margot lives in Calgary, Alberta, with her 19 year old son, Christopher, of whom she is especially proud.