Friday, July 31, 2009

Bubbles, Slogs, and Selling Out: Part 14

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A rage management problem, combined with a healthy streak of paranoia, had appeared in Clay, our business development guy at CNET, as he became increasingly convinced, in spite of much evidence that I'm no business sharpie (I hadn't, for one thing, tried to get him to raise his offer) that we were using CNET's offer as a bargaining chip to get a better deal elsewhere. "If you're shopping our offer around, I need to tell you right now that this offer is off the table!!!" he screamed into the telephone one afternoon. I understood this was just twitchy dealmanship - just doing his job, albeit in a brutally ungraceful way - and that the people I'd actually be working with at CNET, guys like Martin Green, were far more temperate and low-key. But coming to the end of this long, long, saga, "off the table" was not a phrase I received calmly.

So I pressed The Washington Post for a decision, but they'd had too little time to consider the idea, and couldn't put together an offer within my dwindling time frame. When I informed the CEO of their Interactive division that I felt compelled to accept CNET's on-the-table offer, this woman, who I'd never met, and had only spoken with twice via phone, offered an uncommonly heartfelt expression of congratulations. She told me she was genuinely thrilled I'd found a home for Chowhound and that I'd be paid for my efforts. I hadn't expected such warmth, but managed to get off the phone without choking up.

The mogul was less gracious. In spite of my clear ambivalence to his offer, he'd apparently thought we were a done deal. We parted on more or less polite terms, but I've never heard from him again.

I gave the nod to CNET, and thus began a period known in corporate circles as "Due Diligence". This is when the acquiring company picks up a fine toothed comb (and a studded cudgel) and pores over your accounting, your paperwork, your figures, your disclosures, the sensitive skin beneath your fingernails, all to determine that you're not really what you've said you are.

Due diligence is, in other words, the time when otherwise powerful, aggressive execs, who'd been compelled to act meek in order to do the deal, give way to otherwise meek accountants and lawyers, who are compelled to act powerful and aggressive in order to ferret out sufficient dirt to undo that very same deal. As with drug-sniffing dogs, trained to froth hysterically for a whiff of crystal meth in your luggage, vindication is definitely not the goal.

The experience of due diligence can best be described as combining, like an emotional spumoni, three distinct hues: 1. the stomach-wrenching anxiety of receiving a letter from the IRS informing you of your massive audit beginning tomorrow; 2. the raw animal fear of opening one's front door to find a team of FBI agents holding a search warrant and brusquely instructing you to stand aside while they rummage through your closets and drawers and rip open your couch cushions; and 3. the frozen horror of watching the prison doctor crisply and efficiently snap on a plastic glove and asking you to drop what you'd presumed to be a simple blood pressure check.

Only the stakes are considerably higher. The offer you'd been talking about, focusing on, agonizing over for the past few weeks could be revoked as if by a single keystroke if something - anything - seems out of order. Cops know ways of making innocent civilians nervous. The bean counters who do due diligence put them to shame. Presumption of innocence? Ha! The presumption is one of filthy, shameful guilt. Your life is a lie, a sham, and IT'S ONLY A MATTER OF TIME BEFORE WE UNCOVER THE TRUTH, BEEEEYUTCH, snarls bald, pudgy Marvin Schnitter, CPA (not a real name). Due diligence is where the nebbishes get to play superhero, smiting the wicked and so forth with their sharp, sharp pencils.

Stockholm Syndrome ratchets up, and you start believing it. You develop an all-consuming need to DESTROY THOSE FRIGGING PAPERS, if you could only remember which papers hold the incriminating evidence. Maybe you should just torch your entire house. After dousing yourself with gasoline. Along with your business partner, your accountant, your lawyer, and your immediate family, all cowering helplessly in the bunker. It's been real, guys, but this is the end of the road. It's only a matter of time before the diligence doers find But we'll be in a better place then.

When the bean counters finally, reluctantly, receded, like a rabid pack of German shephards who'd been allowed to bare their furious fangs within an inch of your temptingly juicy calves, but forced to retreat to their lairs at the very last moment, the transparently thin veneer of Clay's honey-dripping voice came close to feeling like Good Cop.

Ok, I've exaggerated (it's my sole self-indulgent spree of exaggeration in this tale, by the way; the rest is all true). CNET's treatment was actually comparatively quick and mild. But due diligence is, inherently, an unpleasant process even under the best of circumstances, especially given the heightened stress of the situation - not to mention my bedraggled condition. Non-meticulous with paperwork, I spent weeks diving, under monumental pressure, through spotty, randomly strewn documents, and trying hopelessly to recall minute details of actions hastily taken over the course of eight years of panicky white-knuckled hyperextension. And, like many honest people, I find it unnerving and embarrassing to be treated with suspicion.

Though CNET's diligence doers were impeccably polite and professional, the very machinery of this process is set up to fill the diligence-ee's ears with the phrase "Deal's Off...Deal's Off..." like an unceasing echo from Hell. So, while I hope you'll forgive my dramatic license, that's truly how it felt.

Read the next installment (#15)


joshi said...

i think you're over-estimating the power of the due diligence process. it performs the same function as that of a pre-marriage counselor: you are aware he snores? you know she is periodically cranky? etc. once lust/love sets in, the marriage is going to happen no matter what the pre-marriage counselor says, modulo the discovery of incurable disease, homicidal tendencies etc.

believe it or not, every single financial structure responsible for todays havoc went through a process of due diligence.

Jim Leff said...

Joshi, while it's true the deal likely wouldn't have been undone even if we had skeletons in our closet, at least in the tech world (which is all I know), the DD process is often used the way a house inspection a way to find excuses to chip away at the offer price. That was a real concern. Plus, we were locked down tightly during the process, in a wholly unilateral way. They could drop or alter their offer, but we couldn't look elsewhere. And given the timing, any stall could have pushed us past the window of opportunity re: this bubble. It's hard to know just where you're at, timing-wise, in a bubble, of course.

Also, consider that our tech was about to explode (we'd disclosed this to CNET, but, still....). And our biz dev contact was looking more and more twitchy/paranoid. And we'd had a gazillion moments of great expectation for Chowhound over the years, so there was a lingering suspicion that Lucy would once again snatch away the football as we reluctantly went to kick it one more time. Even though they weren't likely to drop the offer, they were contractually free to do so, and could use any DD shortfall as excuse. That's how tech acquisitions are set-up. No kill fee for us, either.

Due diligence was as airless and fraught as I reported.

Carolina deWitte said...

Where's the rest of the story? Don't we get to hear the ending? I thought I was going to be able to read it all in one shot, but that's obviously wrong. I DO hope you finish the tale, and soon. I'm dying of anticipation here.

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