Synopses & Reviews
"The underlying purpose of this book is to empower negotiation for business-to-business dealmaking of business opportunities using analytical tools and planning procedures. The focus on practical tools and procedures that can be justifiably used in a business context distinguishes the book from a vast catalog of other negotiation books."
From Chapter 1
Business negotiation is often characterized as a "take it or leave it" battle of wits between buyer and seller. But it is much, much more. In reality, business negotiation involves two partiesperhaps business adversaries or perhaps business alliesfaced with reaching a reasonable value-enhancing agreement from a range of possible options.
Dealmaking Using Real Options and Monte Carlo Analysis details how you can employ two of todays most powerful decision-making toolsReal Options Analysis (ROA) and Monte Carlo Analysis (MCA)to effectively prepare for every negotiation by comprehensively and rationally representing myriad possible futures. This uniquely hands-on book outlines a step-by-step process for determining what you want, learning why it is reasonable to hold such a view, and successfully communicating that knowledge to both internal stakeholders and those on the other side of the negotiation.
Richard Razgaitis, an influential thought leader in the field of licensing and valuation, walks you through the tools and approaches of ROA/MCA joint usage, including:
- Real Options Analysissometimes referred to as "Black-Scholes" analysis, it is valuable for determining pricing structures, or options, for such outcomes
- Monte Carlo Analysisan increasingly popular tool for determining the likelihood and significance of a complete range of future outcomes
- Checklists, case studies, web site addressesfor further business and negotiation resources
In the no-quarter world of business negotiation, a patient and methodical inquiry into all relevant matters is not practical. At the same time, rapid analysis may not provide the data required to satisfy all parties. What is needed is a model that takes into account the speed and urgency required to effectively prepare for a negotiation while allowing rational and defensible analysis of the numerous real options.
Dealmaking Using Real Options and Monte Carlo Analysis introduces that model. This practical, results-based book unveils a negotiating system that achieves the dual goals of speed and reasonable certainty, and is destined to become the method of choice for reaching outcomes designed to satisfy all parties in the negotiation.
Synopsis
Applying practical tools to the volatile process of negotiating
Prognosticators apply Monte Carlo Analysis (MCA) to determine the likelihood and significance of a complete range of future outcomes; Real Options Analysis (ROA) can then be employed to develop pricing structures, or options, for such outcomes. Richard Razgaitis' Dealmaking shows readers how to apply these powerful valuation tools to a variety of business processes, such as pricing, negotiating, or living with a "deal," be it a technology license, and R&D partnership, or an outright sales agreement. Dealmaking distinguishes itself from other negotiating guides not only by treating negotiations as an increasingly common situation, but also by presenting a tool-based approach that creates flexible, practical valuation models. This forward-thinking guide includes a variety of checklists, case studies, and a CD-ROM with the appropriate software.
Richard Razgaitis (Bloomsbury, NJ) is a Managing Director at InteCap, Inc. He has over twenty-five years of experience working with the development, commercialization, and strategic management of technology, seventeen of which have been spent in the commercialization of intellectual property.
Synopsis
An Innovative, Tool-Based Process for Creating More Rational, Creative, and Mutually Beneficial Deal Structures and Valuations
Real Options Analysis (ROA) and Monte Carlo Analysis (MCA) are two of todays most significant tools in the valuation and negotiation of high-potential-value, high-ambiguity deals. Dealmaking Using Real Options and Monte Carlo Analysis outlines a new approach for creating flexible, practical valuation models by combining ROA and MCA into one innovative and proven successful process.
This results-based book takes you beyond uneven, rule-of-thumb negotiation tactics and strategies to discuss how you can:
- Accurately evaluate the potential costs of going forward withor scuttlinga business project
- Ensure that both sides in every negotiation work from similar valuation terms and processes
- Develop and implement efficient strategies for bringing negotiations to closure
In preparing for any business negotiation, the goal is to identify opportunity and characterize risk; during the actual negotiation, the goal is to capture value while arriving at terms that are favorable to everyone. Dealmaking Using Real Options and Monte Carlo Analysis introduces a process for achieving both goals, by focusing on practical tools and procedures that take into account the full range of opportunitiesand lead all sides to the identification and selection of optimal choices.
Synopsis
Includes bibliographical references (p. 281-282) and index.
About the Author
'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. '
Table of Contents
CHAPTER 1: Introduction.Why Another Negotiating Book?
iDealmaking™.
High Significance, High Ambiguity Contexts.
The “So What?” Question.
Valuation, Pricing, and Negotiation.
Tangible and Intangible Content/Value and the New Economy.
The iDealmaking Process.
Organization of the Book.
CHAPTER 2: Negotiation People, Language, and Frameworks.
Negotiation People.
A Quest.
The Nut, the Number, the Bogie, and the Toe Tag.
Quantification, Rationality, and Hyperrationality.
CHAPTER 3: The Box and the Wheelbarrow: What Am I Selling (or Buying)?
The Box.
The Wheelbarrow.
iDealmaking’s Spine.
The Term Sheet.
Methods and Tools.
CHAPTER 4: Discounted Cash Flow Analysis and Introduction to Monte Carlo Modeling.
Discounted Cash Flow Analysis.
Scenario (DCF) Analysis.
Monte Carlo Method: An Introduction.
Closure and Application to Negotiation.
CHAPTER 5: Monte Carlo Method.
A Model Cash Flow Template.
Income and Cash Flow Statements: 3M Example.
Monte Carlo Assumption Tools.
Uniform Distribution: Highest Uncertainty Between Certain Bounds.
Triangular Distribution.
The Normal Distribution.
Other Distribution Functions.
Monte Carlo Model of the DCF Template.
Combined CAGR and Cost Ratio Uncertainty Distributions.
Correlating Assumptions.
Additional Assumption Distributions.
Twentieth (and Other) Percentile Valuations.
Comparison of Monte Carlo Results with DCF (RAHR) Method.
Scenario Modeling in Monte Carlo.
Monte Carlo Tools for Determining Variable Significance.
Final Points on the Monte Carlo Model.
Appendix 5A: Crystal Ball Report Corresponding to the Results Presented in Exhibit 5.15 for a Uniform Cost Distribution Assumption.
Appendix 5B: Crystal Ball Report Corresponding to the Results Presented in Exhibit 5.16 for a Double-Humped Cost Distribution Assumption.
CHAPTER 6: Introduction to Real Options.
Perspective 1: Discounted Cash Flow (DCF) View of the Six-Scenario Opportunity.
Perspective 2: Real Option View of the Six-Scenario Opportunity.
Perspective 3: A Model for a Buyer’s Counteroffer.
Black-Scholes Equation for Option Pricing.
The Black-Scholes Equation Applied to an Option to a Share of Yahoo!
What Do Equations Represent? “What Is Truth?”.
Using Black-Scholes for an Opportunity Valuation .
Summary of Real Option Realities versus Black-Scholes.
CHAPTER 7: Real Options Applied to Dealmaking.
Beyond Black-Scholes.
Emergence of Real Options Analysis.
Introducing the Binomial Lattice for Real Options.
Calculating Option Values from Binomial Matrices.
Calculating Option Values Using Decisioneering’s Real Options Analysis Toolkit.
Using Real Options Analysis Toolkit Software in Dealmaking.
Calculating (or Estimating) Option Volatility.
Calculating the Option Value of Options on Options.
Conclusions and Observations.
Appendix 7A: Real Options Equations.
CHAPTER 8: Knowledge and Unertainty.
Future Knowledge.
Dealing with Uncertainty.
Standards.
What About Truth?
CHAPTER 9: Deal Pricing.
Simple Pricing.
Box Pricing.
Wheelbarrow Pricing.
Total Cash Payment.
Cash When.
Cash Maybe.
Cash As.
Cash Substitutes.
Term Sheets.
CHAPTER 10: Negotiation Perspectives and Dynamics.
Negotiation Perspectives.
Negotiating Sequencing.
Issue Explosion.
Negotiating Values.
Deal/Agreement Complexity.
CHAPTER 11: Plan B.
Auctions and Betrothals.
Plan B Analysis and Tools.
Plan B Implementation.
Plan B Caution.
Plan B from the Buyer’s Perspective.
Plan B and Life.
CHAPTER 12: Conclusion.
In Theory, In Practice.
Value Creation by Dealmaking.
A Final (True) Story.
Bibliography.
Index.