My Zawya Story: Acquisition Negotiations

This post is part of the My Zawya Story series.

In my Origins post I set the stage for the start of discussions between Zawya, led by Ihsan Jawad as CEO, and Saffar, led by myself as CEO, for some form of cooperation. Supporting me in my negotiations were two of the directors of Saffar. Ihsan was supported by one of his co-founders, Husain Makiya.

Zawya needed funding, and Saffar had money to invest. But this was not a pure financial play for Saffar. Saffar had a long term strategy and a data & information company, which it was already building, formed the foundation of this strategy. As such Saffar decided that they must take majority control of the equity if they were to invest. The complicating factor in relation to Zawya was that due to the bursting of the internet dot-com bubble funding was tight and the founders of Zawya were faced with the proposition of having to issue far more equity then they originally planned with the prospect that they would have to relinquish control.

Against this backdrop initial discussions began in early 2001 and there were challenges from the start. I am convinced that if the economic environment had been better that Zawya would have found a more compatible investor and Saffar would have found a more compatible acquisition target. In the absence of an economic safety net the two sides were forced to continue talking well past their comfort zones.

One important question regarding Saffar’s negotiating strategy was whether or not to force the issue by setting strict deadlines. As Zawya was running low on funds the pressure would have been great for its founders to acquiesce to Saffar’s demands. Given the strong personalities on the board of Saffar I take it as a testament of good business over egos that I decided not only to avoid forcing the issue, but I ended up providing loans to Zawya before we even agreed to a deal. I believed that this was the way to build an effective working relationship that would create long term value.

The final element of the deal was retaining management. As Zawya was so young, keeping the management team intact for the first 12–18 months was critical. The argument made to the Zawya team was that Saffar had accepted a ‘full’ valuation based on the current team running the show for the next 18 months. If the team left before that, then Saffar would deem the valuation to be impaired. To their credit, the Zawya team, after some negotiation, accepted that part of their equity be in the form of a retention plan.

It would be easy to believe that the difficult economic backdrop handicapped negotiations but being forced out of my comfort zone taught me that aiming to win every point is not only unnecessary it also needlessly narrows the deal pipeline. The principled negotiating strategy of Saffar, built on the concept that a position of strength should be used to defuse tensions rather than force a solution has worked well for me in many subsequent deals.

The deal closed on 19 November 2001, and we began work on initial operational issues.

Main series page: My Zawya Story.
Previous article in series: Origins.
Next article in series: Two Initial Decisions.