The Universal Science of Dealmaking

“Show me the incentive, and I’ll show you the outcome.” -Charlie Munger

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We work with more than 2,500 Main Street business builders every day.

When a $100 billion acquisition grenade goes off like this, it might seem so big that it’s irrelevant…

But it’s not. Big deals and small deals almost always come down to a few specific, fascinating forces.

Understand these forces, and every deal starts to make sense.

First, What’s Happening?

On December 5, Netflix announced an agreement to acquire Warner Bros. Discovery’s (WBD) “crown jewels” in a deal valued at $82.7 billion. That includes the Warner Bros. film & TV studios and HBO.

The Catch? This is a complex “breakup” play. It requires WBD to spin off its linear networks (CNN, TNT, TBS). Netflix gets the growth assets and legendary IP (Harry Potter, Superman, Game of Thrones, etc.) without the baggage of cable channels in secular decline.

Wow! Crazy! So we’re getting a Stranger Things x The Sopranos multiverse?

Not so fast. Just three days later, Paramount Global launched a hostile $108 billion bid for the entirety of Warner Bros. Discovery. The reaction in our company Slack:

Sorry, bankers.

There are a few remarkable things to note here. Namely, Netflix once tried to sell itself to Blockbuster for just $50 million. Think about that.

Here’s the story from Marc Randolph, the co-founder and first CEO of Netflix:

“If you are unwilling to disrupt yourself, there will always be someone willing to disrupt your business for you.” Ain’t that the truth. Today, Netflix is worth around $430B, or 859,900% more than what they asked Blockbuster to buy them for in 2000.

This story is one of the great investing examples, perhaps of all time, of the value in building something inevitable over a long enough time horizon.

It’s also an amazing example of how even the mighty can “fall.” In 2000, AOL acquired Time Warner in the 2nd largest acquisition of all time (~$165B). In the past 30 days, we have seen:

• AOL acquired for ~$1.5B
• Time Warner (WBD) acquired by Netflix

…Both for far less than their valuations at the turn of the century.

So What’s the Strategy Here?

Here’s what Netflix CEO Ted Sarandos is saying explicitly:

“In this transaction, we pick up 3 businesses, basically, that we’re not currently in.”

Those 3 businesses:

1. Motion picture studio + theatrical distribution. “We’ve never been in that business, and if this — when this deal closes, we are in that business.”
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2. Television studio. “We were never in that business; we are now.”
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3. HBO. “[HBO] is a prestige television brand… [Netflix is] a very well-established general entertainment brand… We want HBO to double down.”

Throw it all together, and you’ve got one hell of a value driver.

What about Paramount? Why are they interested in buying WBD?

Take a look at this chart:

If Paramount doesn’t land this deal, it may fall painfully far behind the pack. That, and a world where Netflix has unfettered access to WBD’s library of franchises, is a really hard world to stomach if you’re Paramount.

But 1 of the biggest questions in all of this is…

Regulation. Specifically, will regulators let either version of this deal happen?

• Critics say Netflix owning Warner Bros. is monopolistic and bad for competition.
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• Others counter that Paramount owning them would be worse for competition.
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• Some argue that neither outcome matters since YouTube dominates U.S. TV viewing time.
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• And a few think none of this is relevant, since AI could upend the entire Hollywood model, driving production costs near zero and creating an existential source of competition for all.

What matters for you is this:

At their core, the same forces driving deals like this will drive your deals too. Here’s how…

3 Things a $100B Deal Can Teach You About a $100K Deal

A little over a month ago, we brought ~1,000 builders, operators, and investors together in Austin for our largest in-person event to date.

One of the most valuable moments of the entire 3-day event was a live “deal review” session led in part by our friend, Donald.

Donald founded an elite investment firm. He also serves as a senior advisor across the federal government for agencies like the Small Business Administration.

And one of the very first things Donald told the room was this:

“The commas and the zeros don’t matter.”

What’s he mean by that?

“I’ve dealt with restructuring at the federal government level, with $37 trillion of debt. I’ve done deals as small as a couple of hundred thousand dollars. It doesn’t matter, it’s all the same.”

In other words, whether you’re negotiating an $82 billion media takeover or an $820,000 plumbing business in Colorado…

The forces that determine the outcomes are fundamentally the same.

As Donald put it:

• There are a lot of great markets that you may not want to be in
• There are a lot of great companies that aren’t great deals
• There are a lot of great deals that aren’t great deals for you

That’s how Netflix thought about their deal, and when you find a deal that seems right for you, these same 3 things will matter a lot:

1. Knowing Your Risk Environment

Donald breaks risk into 3 buckets. There’s product risk, there’s market risk, and there’s execution risk.

None of these care about commas, he says.

If you’re Netflix, you’re certainly facing some market and execution risks with this deal. But what if you’re not Netflix?

What if you’re the Contrarian Academy member who presented their deal to Donald for a land and boat tour company located on a remote island. On the surface, it aligned perfectly with their background.

But underneath, it carried many of the same potential risks:

• Captain’s license required (Execution Risk)
• Extremely high insurance premiums (Product Risk)
• Revenue tied to cruise ship traffic (Market Risk)

…And on top of all those? A potential case of Ferrari Risk.

What to Know About Ferrari Risk

There’s often a “bright shiny object” element in deals of all sizes, Donald says. Something that feels sexy or uniquely appealing. Before you chase it, ask yourself the Ferrari question:

• Say you always wanted a $400k Ferrari, and finally had enough money to buy one...
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• If someone offered you the exact same $400k Ferrari (identical performance, identical build) but removed the Ferrari logo and sold it to you for $350k…
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• Would you still want it just as much?

If yes, great.

But if that gives you even one moment of pause, think long and hard about why.

2. Identifying the Incentives at Play

“Any deal, no matter how big or small, is really just a discussion around incentives,” Donald told the room.

“You’ve got a set of incentives. They’ve got a set of incentives. If you don’t understand what their incentives are, it’s really hard to negotiate a price and terms.”

Most deal breakthroughs come from identifying the incentives of the person across the table from you, and removing their blockers.

For instance, another Contrarian Academy business buyer presented a deal for a local ambulatory surgery center. Let’s look at the seller’s incentive levers in this deal:

By spotting these levers, the buyer can structure a deal that’s more likely to close.

The same discussions around incentives are likely being had in the boardrooms of Netflix, Warner Bros. Discovery, and Paramount right now.

In fact, here’s a text message from Paramount’s CEO to his counterpart highlighting their very clear focus on addressing incentives:

3. Understanding the Drivers of Price and Terms

This takes identifying those incentives and goes a step further. It’s about actually pulling those levers strategically.

Remember that boat tour business? The seller mentioned he’d offer even better financing than the buyer requested. Why?

“He doesn’t want to do this anymore,” Donald explained. “He wants to hit the beach, retire, and have freedom. So this is a great opportunity to get an insane deal and a great set of terms, because there are no other buyers.”

Now you must actually act on those incentives by negotiating on price and terms. And likewise, you must also act on your own incentives.

Remember, Donald said, “Something that’s hard to find a buyer for today is likely to be really hard to find a buyer for later. So you need to evaluate it honestly.”

• Do you really want to operate this business in this location?
• Do you want to own this business for 7-10 years?
• Will someone else want to buy it from you later?

If the answer is no:

“You have to bake that into the price today.”

Now Let’s Make This 100% Tangible for You…

Now you know what makes the Netflix deal interesting to us isn’t the scale. It’s the underlying logic. Big companies make moves like these to protect their futures.

But acquisitions, cash flows, intellectual property, synergies… The same fundamental ideas apply to a local HVAC firm, a logistics fleet, or a commercial cleaning service.

Unfortunately, even great operators often lack an efficient blueprint to sourcing, evaluating, negotiating, and integrating an acquisition with confidence.

Earlier This Year, We Fixed That (And We’re Doing it Again)

We hosted a 100% live, 3-day, virtual intensive to teach people these mechanics. Over 72 hours, we immersed people in the acquisition process. Just a clear, holistic understanding of what it actually takes to buy the right small business for you.

Thousands attended, and right now, hundreds are still doing the real work of building relationships with brokers, managing the emotions of sellers, and digging through the financials of their target businesses.

We view this as perhaps the single most valuable dollar-for-dollar event we may ever produce, given the density of practical instruction and application relative to the affordable cost.

But mostly, a world full of A.I. slop, what matters to us is what real people like you think about our live events like this one:

• “Fantastic insight into the nuts and bolts of what to do and how to go about acquiring a business.” -K.B.
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• “The live deal breakdowns were fun to watch, and each one gave a different insight into how to craft a deal.” -Joshua F.
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• “This wasn’t just another hype-filled event. It was packed with real, actionable strategies and hands-on workshops. Codie and the team poured so much value into every session, and the energy in the room was next level.” -Adam C.
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• “As someone who has spent over two decades in corporate, I have wasted time on many superfluous events and workshops, and this was nothing like that. I left exceeding my objectives.” -Marivel S.
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• “The entire team cares a lot about everyone’s success. That said, this is for people who are action-oriented, willing to put in the reps, and are disciplined towards reaching their goals. When Codie says that buying a business is hard, she’s telling the truth.” -Jabari H.

If you want to buy a small business and approach the acquisition with competence, discipline, and a realistic plan, that’s exactly what Main Street Millionaire Live can help you with.

We go live February 20th-22nd. But our most affordable pricing (just $47) will likely end on January 5th. Let us know if you got a ticket and plan to attend.

We truly hope to see you there.

-Team Contrarian

The information contained here is educational, may not be typical, and does not guarantee returns. Background, education, effort, and application will affect your experience and the profitability of any business. Individual results may vary.