Reece Tomlinson is the Founder and CEO of RWT Capital Corp. and the Author of Uncommon Capital.

When I first started doing M&A deals, I like many others, had a belief that mid-market M&A deals were essentially a logical process driven outcome that were performed accountants, CFA, investment bankers and astute business people. A lot of the books and newsletters I read treat deals this way but what I have learned is that for the majority of mid-market deals, logic is often missing in the equation.

I like to use the notion of a lottery ticket as a reference. Lets say that you have a winning lottery ticket in your purse that you know wins you a $20m lottery. The moment you knew you had that winning ticket in your grasp, you would run to cash it. Probably as fast as you can. That is the logical outcome.

When it comes to mid-market M&A the logic flies out the window. Business owners can own a business worth $20m yet they are highly reluctant to sell or monetize their hard work. They have the lottery ticket in their pocket (or purse) yet they fail to cash it. Instead what should be a logical process is replaced by factors that most buyers and sellers dramatically fail to acknowledge; ego (sometimes significant ego’s), fear, unwarranted optimism bias, cognitive dissonance, mis-informed beliefs and seemingly non-consequential deal asks.

I’ve written about each of those individual topics at length. And many of them have valid reasons behind them…building a business from scratch to the point where it is worth many millions of dollars is not easy thing and requires a certain level of bravado that when accomplished can create ego, optimism bias due to the notion that it always worked out in the past or strong beliefs in their decision making capability as it historically delivered results.

Adding to all of this is the notion that many business owners are what I like to refer to as adversity driven founders. Wherein, founding the business was a means of control, self preservation, proving ones worth and creating safety. Stripping the business owner of this creates a situation rife with internal turmoil and hard to navigate.

Going into detail on those specifics is something I have written at length about and that’s not what this piece is about. Rather, its about identifying the tactics needed to manage the illogical baseline that underpins many mid-market M&A transactions.

Here are four key steps to overcoming illogical behaviour in an M&A process:

1)      Illogical deal activity is not overcome by simply educating the other party on how illogical they are being. It doesn’t work and normally makes it worse. Anyone reading this who is married, likely knows this intimately…Rather, the way through it is by a genuine desire to understand and appreciate the other sides view point. In short, build the relationship first.

2)      Next is to put yourself in the other persons shoes. Much of the illogical activity in an M&A transaction is actually coming from a place of fear. Build trust, build the relationship, help the other party have some control of the process. The best deal makers realise that the best outcomes come when the other party feels involved and not overlooked. This is particularly relevant for the adversity driven founders I mentioned earlier.

3)      Be a deal maker. The term deal maker is in itself a clear indication that a deal is there for the “making” and to make a deal one must be creative, understanding, seeking mutual solutions and deeply understanding the other parties actual motivations.

4)      Have compassion. Although to you, the M&A deal and underlying process may seem very logical…its highly possible it is way more than simply a business to the other party. Compassion for that party, what they are going through, what a transaction means for them and their families is critical. The best mid-market deal makers understand this.

In the end, the lottery ticket analogy only holds so far. A lottery ticket is just an incredibly lucky piece of paper. A business is years of sacrifice, risk, identity and, for many founders, the thing that kept them safe when nothing else did. Asking someone to hand that over isn’t a logical exercise, no matter how compelling the numbers look on a spreadsheet.

That’s the part most deal books leave out. The mid-market deals that get done aren’t won by the sharpest model or the cleverest structure. They’re won by the people who understand that logic is only part of the equation, and who have the patience, empathy and creativity to navigate everything else.

So the next time a deal starts to feel illogical, don’t fight it. Lean in, get curious and ask what’s really going on underneath. More often than not, that’s where the deal is waiting to be made.

‍