The Cryogenically Frozen Deal

Have you ever seen Austin Powers? Are you one of the believers that Walt Disney is still alive, cryogenically frozen beneath Splash Mountain? Even you non-believers, I have good news. You CAN keep something alive after its dead, just ask any investment banking executive. Let me explain to you how it works and you’ll understand what I mean. When an investment bank signs a deal, they get a “mandate” from the client. The mandate is a signed document between the client and the investment bank that says the bank has been hired to complete the transaction. Every executive wants and needs mandates; it’s how they collect fees.

The problem lies in the fee structure. You see, almost every mandate is back-ended, meaning that the majority, if not all, of the fee comes as a “success fee” when the transaction closes. Before completion the bank only gets expenses reimbursed which means the director has no profit to show when it comes to bonus time, this is why mandated deals never die.

Luckily for me I just started, but I am now involved in the execution (attempted completion) of two dead deals. What happens is this, as each quarter passes, new financials are released by the client that must be incorporated into the hundred plus page memo. It takes a solid week of continuous work to do this as each time the lawyers need to sign off and so on. After this is done the client sits around waiting and waiting, finally they decide that they are so close to reporting “great numbers” that they decide to hold off the deal until the next set of financials come out in a month. This circle is endless and goes on and on because the client really isn’t sure of what they want to do.

So as an investment bank when do you say enough is enough? When do you decide that if you continue throwing resources at it the deal still won’t go through? Never. An executive who doesn’t have profit prefers to say “well we’re mandated on [dead deal]” than say nothing at all. They don’t care what else is going on, in their mind continuously wasting time is fine; they aren’t the people pulling the all-nighters. Take a guess at how I feels to be working all night updating a document for a bullshit deadline for a deal you know will never close…you’re right.