I learned a good lesson related to this when I was engaged in the purchase of ACI (local payment software company) from Tandem Computers in late 1993. We had made some progress negotiating a price for the company that was acceptable to my partners (three VCs and a major bank) when we were informed there was another bidder who had put together a superior bid. (I never knew whether this was a negotiating ploy to get us to up our bid or not; we took it as being real).
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