Although the team was optimistic about ISS's potential, it did identify a potential barrier to broad

market acceptance: given the intrusive nature of the service $($it required hospital management and

personnel to embrace the idea of identifying internal deficiencies and systemic weaknesses$),$ there was

a risk that the broader market might resist adopting it$.$

All factors considered, the PDC team requested approval from its CEO to engage HCE in discus$-$

sions. The request included a framework for a potential alliance, which included the following major

elements:

An initial minority interest in HCE with an option to acquire a $100$ percent interest;

Representation on HCE's board of directors;

Utilization of PDC$\text{'}$s North American sales force to penetrate Canadian and U$.$S$.$ hospital markets

in order to validate ISS's market potential;

A three$-$year window for the alliance to demonstrate "success," defined as an approximation

of projections presented in the accompanying plan;

A prospective purchase price based on pre$-$established metrics $($e$.$g$.,$ multiples of revenue

or EBITDA$)$ if market potential is validated;

An exit plan if HCE decides not to exercise its option.

PDC$\text{'}$s CEO approved approaching HCE management with this framework to determine if a relationship

was possible.

STEP $3$ Partner Engagement

PDC$\text{'}$s SVP of sales and marketing, Richard Kent, who had participated in the internal planning process

and who knew HCE CEO Raymond Zoeller personally, was nominated to make initial contact. The two

agreed to meet at an upcoming trade show to discuss possible forms of intercompany collaboration.

At this initial meeting, Zoeller, who held $90$ percent of HCE's outstanding shares, made it clear that he

had no interest in an outright sale of HCE to PDC$.$ He felt that a sale at this time would be premature

because he believed HCE's value $($i$.$e$.,$ its selling price$)$ would be significantly sub$-$optimized. Zoeller

did agree that an association with PDC would very likely accelerate HCE growth. Kent floated the idea

of PDC acquiring a minority interest in HCE with the possibility of acquiring the company outright

at some future date. Zoeller indicated that this prospect was interesting enough to warrant another

meeting, this time with a small group of each organization's executives, to discuss potential synergies,

market opportunities, and company philosophies. Because they would be exchanging proprietary

information, they agreed to execute nondisclosure agreements in the interim.

Meeting to establish strategic and cultural compatibility

Representatives from the two organizations met and discussed their respective views of the hospital

markets, the potential of ISS, the ability of PDC$\text{'}$s sales force to sell the service, and any perceived

impediments to collaboration. There was general agreement that the companies were a good strategic

fit. Both operate within the hospital information market and service the same constituencies, namely

nurses, pharmacists, and physicians. In addition, there did not appear to be major differences in cor$-$

porate culture or management approach. The only cultural issue that surfaced was the product versus

service orientations of the two companies, but the representative agreed that this gap was bridgeable

by training PDC sales staff and familiarizing HCE personnel with PDC$\text{'}$s products. Zoeller also agreed in