How to Structure an Acquihire Deal in the AI Talent Race

22:17We don't want antitrust laws to apply every time we make an offer to an employee. If you just think about an acquihire as a really big employee hire, I think there are legitimate questions about whether that's even the right policy outcome for antitrust laws to cover it. But I'll put that to the side. It's not a philosophical debate to to gauge in. But for the moment, I would just say it is a clever and interesting structure that you're starting to see gain some traction by practitioners in that it bridges the speed and

22:46Derek Liu:efficiency of the asset structure while preserving some of the tax benefits, at least of the stock structure. But nonetheless, the structural challenges remain. On the one hand, you can buy the stock of a company and that's tax efficient, but you had to deal with all the historical baggage. or you can buy the assets or just the employees in a much simpler transaction, but you are then dealing with potential for higher taxes. That's the trade-off in these two structures. Why do you end up with higher taxes? I feel like that was so common as to do an asset sale. It's that double layer of taxation I mentioned.

23:19So what that means is that, let's say you sell the rights to your workforce for$100. So first, there has to be a corporate layer of tax. So that means in about 20 % or so, just taken off the top, that the corporation receives. Now, the corporation could have an NOL to offset that. And sometimes that's what we see. But if there are no NOLs, then the corporation itself has to pay 20 % tax or so. Then that proceed is still stuck in the corporation. So when they dividend it up to their shareholders, the shareholders then have to pay another layer of tax.

23:51Derek Liu:Visual tax. So that's where you end up with sort of like 40-ish percent plus state and local. So that's how the taxes become significantly more than if you sold the stock and just did it with regular long-term capital gains. And sometimes with stock deals, you can also get QSBS, which is an even better treatment. So there's a lot of tax advantages to doing a stock deal. And again, this is part of what the meta scale structure solved for by avoiding that first layer of taxation so that you only have the second layer of the distributions. But what it doesn't solve for is preserving QSBS treatment.

24:26It doesn't solve for recognizing the basis that existing shareholders have in the company. It's still not quite as good as a stock structure. And so for that reason, I still think that the stock structure remains on the table for acquihires.

24:41Derek Liu:And so that's why we see that now is just doing more of a stock purchase and absorbing all those liabilities because now you take over the whole company and any baggage and bugs and everything that comes with it. What do they do when they don't want the business? They just want the talent. Do they just wind that business down? They fold it in. They take it to the backyard and light it on fire. What do they do? It's actually a really challenging issue for acquirers. And it's one that we've been dealing with a lot of our clients. So let's break down the big buckets. One is customer contracts. You're buying a business.

25:15That business has a certain number or a certain amount of time to use that product.

25:19Derek Liu:If you want to wind down that business, oftentimes you can't just turn off a contract on a dime. You have to give customers notice. You have to negotiate with them, help them with their transition. These may be, by the way, the very same customers that the acquirer has. So you don't want to just completely piss off your own customers. But the problem is, let's say it takes six months, a year to wind down those customer contracts. That's a period of time that's distracting the team that you just paid a lot of money for. Because presumably, there's some amount of effort and work that has to go to servicing those customers.

25:53So in an ideal world, you'd want your team to basically start working on your stuff. Day one, no distractions, no encumbrances. But because of the customer contracts, there has to be a little bit of a dance of like, all right, how do we do this in a way that's minimally distracting to you, where we're not incurring a lot of liabilities. And at the end of the day, everyone kind of walks away happy. So that's one category that my clients have had to navigate. Another category, the employees that you don't want. In a stock deal, you take on everyone. It's a little bit unfortunate, but sometimes the acquirer doesn't have a role for everyone in the organization, particularly in these acquihire situations where they may very well be just interested in a core team.

26:34They don't care about the sales and marketing team because they're not going to sell the product anymore. G &A always got laid off in every M &A deal, so that doesn't change. Unfortunately, the lawyers always get laid off. That's a one lesson for your listeners, right? Product support. You don't need product support, people. anymore. So those folks acquires trying to get the target to terminate them beforehand so that they don't have to deal with them. But it's a little bit of a dance. If you're talking about distributed teams, it could be hard to fire people in jurisdictions outside the US. You may have to give them notices.

27:04So there's all sorts of constraints that folks now have to deal with on the employee end. All of that rolls up into sort of this question of liability. You ideally want as quick of a process as possible. You want these people on board yesterday. That's the whole urgency of all of this is you want these folks on yesterday. But now when you have to do all the due diligence and you have to figure out the wind down plans, all of that just is adding friction to the system of doing these deals because now you have to negotiate this stuff.

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29:06Derek Liu:You can't just buy this in a stock and just kill the company. There's like still obligations. Essentially, you are going to do some cutting and end up with basically a zombie business. Yeah, yeah. To let it die on the vine. Aqua hire scenarios that were done as asset deals. There were significant stub businesses that were left behind. And it did become an interesting question as to whether those businesses, minus the superstars that led them, could still be valuable in some way. my heart goes out to the employees in some of those businesses. Like imagine that you're a tech engineer, you accept a job offer for a hot new AI startup.

29:51You join, you're excited. I don't know, you move your family out to the Bay Area and then you get the news the next day, hey, the company's being acquired, but oh, by the way, you're not among the select that got acquired. You're going to stay behind in this business that has lost its leadership. It's a tough situation, no doubt about it.

30:08Derek Liu:Yeah, talent war we're in. Yeah. So are there any drivers between those models that we talked about in terms of which one you choose? Or is it just current trend is really doing stock purchases now? I think it's... Maybe the size of deal, I guess, is also the threshold. Size of deal, availability of NOLs. I would say that we're in a world where every option is on the table right now. Yeah. I don't think it would be pretty bespoke because if they've already optimized for a tax structure, then you might be more open to using one of the traditional approaches. Is a residual business viable? We have one right now where the residual business may actually be viable.

30:42We're going to do our best to preserve that value. So it's very much a tailored solution in these situations.

30:47Derek Liu:What does due diligence look like on these deals? Because I always think of a traditional diligence and you break it down by function and you're going through and IPs. Yeah, absolutely. But here, if it's just that's not the big driver of the deal, it's the talent. What does due diligence look like then? People, people, people. Back on checks. How many back on checks can you do? Yeah, exactly. You call their school teacher in high school? Yeah, yeah, yeah. No, not background checks, but it's actually a really fascinating dynamic. Okay, I'll go back to the old world. In the old world, when you were buying a company with a product, you usually just interviewed the key people, like the key five or six people, and you brought them under the temp before signing.

31:25And you kind of said, okay, for the rank and file individuals, for the line engineers, we'll deal with those later, basically. Between signing and closing, We will interview them. We'll figure out who we want to give offers to. We might take some of them. We may not take some of them. But we'll figure it out later. That's the old traditional approach. The new approach, because you're paying so much money on the assumption that you're getting the superstar and his team, whatever that team is, maybe 10 people, maybe 20 people, maybe 50 people. Because you're paying so much money for this quote-unquote team, there is an absolute premium on is this team going to work out?

32:03What you're seeing acquirers do is they're trying to front load a lot of these interviews into the pre-signing period. And that itself creates a lot of tension. Because think about it, if you're the target, your one and only value in all of this is your talent. You have an acquirer saying, hey, by the way, can I just meet all of them today? You're thinking like, oh, gosh, what happens if they just coach away my 10 best engineers? You've got a non-solicit, but what happens if they do it? There's an incredible tension right now in how do you deal with this question of, from the acquirer's perspective, I really need to validate for the$100 million that I'm paying that I am getting 20, 30, whatever the number is, that I'm getting 20 or 30 good quality engineers.

32:47I'm not getting any scrubs. I'm getting truly quality people. That's the acquirer's concern. And the seller's concern is, yeah, but my people, those are my crown jewels. How can I let you get access to them before we have a committed deal? You're seeing a lot of negotiation around how to make that work. That would be the single biggest factor. And it's not just background checks. It's sort of like culture fit. It's technical know-how. These acquirers are really thinking of this as, if I were to hire this engineer off the street, would this be a good fit for us? And then in terms of the other parts of due diligence, we're seeing a lot more emphasis on the wind down due diligence that we've been talking about.

33:25So instead of just saying, hey, tell us about the customer contracts. Now the question is, tell us how we can get out of these customer contracts. Employees, tell us how we can terminate these folks that we don't want. A lot of the focus ends up not being necessarily about, hey, make sure their IP is protected, make sure no one's infringing. That part of it on running a continual business, that part has been deprioritized. And what's being prioritized is just how do we get out of this thing for as little time and money as we can.

34:00Derek Liu:We plan around that. We have all these customer contracts, employment contracts, vendor contracts. We want to get out of all these things. Yeah, 100%. Basically get out of the business. Why not poach the talent? Yeah, it's a fascinating question. It is sort of this interesting debate because we live in the great state of California. which for all its pros and cons, but one of them is that you cannot have employment-based non-competes in California. You cannot tell any of your employees living in the state of California that they cannot pick up and go to work for one of your competitors. Okay? There's theories about the fact, yeah.

34:40Derek Liu:Can't enforce it. I want to hear the theories. What are the theories? There's a lot of people that say that's actually what makes California great and so receptive to entrepreneurship because you have all this talent that's highly mobile. They could start one company and they could see another company As M &A practitioners, it makes us pull our hair out. But it could be part of the secret sauce in California. But the point is, you can't do it. There is this interesting question. Why doesn't an acquirer just go up to whatever the metaphorical LeBron James is of a startup and just say like, hey, just come work for me.

35:10Derek Liu:Big sign-on bonus. Yeah, big sign-on bonus. I'll give you a nice RSU package. Forget about your equity and your old company, but I'll make it up for you in a new RSU package. it would be hard for an acquirer to do that across a population of 30 or 40 engineers. At some point, you start running into sort of like tortious interference claims. At some point, you start running into fiduciary duty claims. But if an acquirer were to just walk up to the metaphorical LeBron James, the single individual or two individuals, and just say, hey, come work for me, there really isn't that much that stops them from doing that today.

35:44And I do think that when you look at the outcomes on some of those Apple Hire deals that we've seen, that's one of the constraints that the VCs are grappling with. If you think about in the old world, you're a VC, you bet on a team, you bet on that team building a product, and you put a lot of money behind that product. The security that you get is that product is within the company. The team can't go off and just recreate that product for someone else. You have IP rights and something that was created with all this funding that you've given that has real value. That was your defense. But if you're in a world where the product doesn't matter, you're a VC, you put$100,$200 million of Series A into a company or a product, and the product doesn't matter.

36:37it's just the people, then your leverage position is altered, at least. Not zero, but it's altered in terms of your ability to influence, hey, what happens if those people want to go work somewhere else for pay? And I do think that's going to be a tension because if you kind of break down in any tech deal, what the money goes to, I say this representing a lot of tech acquirers, tech acquirers always think about it in terms of, okay, here's how much I'm paying the cap table versus here's how much I'm giving in the RSU pool. And the understanding obviously is that what you pay to the cap table goes to the founder, the employees, but importantly, the VCs.

37:20Whereas what goes to the RSU pool, you can direct, you can say, you get this much, you get that much. And importantly, none of that goes to the VCs. In a traditional product-led M &A, the cap table proceeds were always the larger part of the deal. You would have a purchase price that was, I don't know,$100,$200. And then you would have an RSU pool that was a fraction of that, $20 or$30 or$50. Because the idea was you were more or less buying the product. What I think the recalibration could be, I've seen a little bit of this, but maybe not enough data points for it to be a trend, but that could get flipped.

37:58Acquirers could say, look, I'm going to give a little bit to the cap table. I'm going to give you the VCs enough maybe to get your money back or maybe at least just whatever is the bare minimum to keep you from suing us. That's what I'm going to give you, the VCs. And then everything else will just be part of the RSU package. That is going to be a potential shift in how these deals are priced and done.

38:23Derek Liu:I want to dig more into just how you think through retention. I feel like I may have key people who think about retention. seems like this is the biggest part of it. Yep. But can you break down RSUs? We don't use the word options anymore. We call them RSUs. Give me some legalese explanation on that. Options and RSUs are just different instruments. The difference is options have strike prices and RSUs just have immediate value. Subject to vesting, of course. Oftentimes, at least in these acquisitions, when you're being bought by a large tech acquirer, the offer packages are usually RSUs as opposed to options because the idea is you're offering employees immediate money subject to vesting, as opposed to sort of with options, you have to participate in the upside and in the growth of the company, whereas RSU is immediate value.

39:10So it's easier to articulate to employees like, hey, I'm giving you a million dollars of immediate value, subject to vesting, of course, as opposed to saying I'm giving you a thousand options that if my stock price were to grow, would be worth money. But if my stock price didn't grow, would not be worth any money at all.

39:26Derek Liu:Is there a difference in like tax implications? No, they're both ordinary income. Okay. That part is mostly the same. Are you liable as soon as you get the RSUs issued? No, it's on unvesting. Okay. Yeah. Going back to your question on revesting for a second, I do want to hone in on that because it's super interesting. Remember we talked about cap table proceeds versus RSU pools? It turns out that acquirers did actually have a retention trick even for the cap table proceeds. What that hook was was called revesting. So the basic idea was this. okay, I'm going to pay$100 to the cap table. But you, the founder, instead of getting your portion of that$100 at closing, you're going to get it subject to revesting after two years, three years, four years, whatever the timeframe is.

40:12You don't get it all immediately. You get it subject to closing, subject to staying along. And the basic idea there was you don't want a situation where the founder gets such a large payout on day one that there's just no incentive to work for the business afterwards. You can imagine people locally say that, what's the amount of money it takes for someone to just go to the beach and retire, right? You're constantly trying to calibrate around that. There's always a tension because you also couldn't, at least historically, you couldn't revest 100 % or it wasn't market to revest 100 % of what a founder made a deal because he's probably spent years and years building a product, for lots of years of not eating dinner with the family and still sitting on ramen or whatever it is.

40:58You have to give him some amount of money to reward him for the product and the business that he's built. And then you hold back some portion of it to reflect the retention desires. Historically, what we saw in the market was maybe 20 % of the founders' proceeds get revested, maybe 30%, maybe 40%, but kind of somewhere in the sub-50 % range gets revested because the thesis was, here's the amount for the product you've built and here's the amount to incentivize you to stay to help us continue building that product.

41:31Derek Liu:Is it the same product? Those are still RSUs? No, so the cool thing about revesting, at least under US tax law, is the revested proceeds can be treated as capital gains. So unlike RSUs and options, which are ordinary income, those revested proceeds have more favorable tax treatment, which was another reason why acquirers like them so much. But here's where that's changing. Now, again, that you don't have a product that you're rewarding necessarily, I'm starting to see acquirers say, hey, instead of revesting 20 % to 50%, we just revest all of it. And on the one hand, you're like, wow, that's a lot.

42:10But on the other hand, the fundamental logic is we're not paying you for what you've already built. We're paying you purely for what you're going to do with us. On that basis, yes, we need to pay your VCs out some amount of money to make them go away. But you, the founder, all of your proceeds should get revested because this is all about the future. It's not about the past. It's all about the future. And that's a really hard conversation to have with a founder.

42:37Derek Liu:What's the difference between revesting and pullover equity or an out structure? Let's go through some terminology. Revesting was what I just talked about, which is you take a portion of the purchase price for a specific individual and you say, you will get this on an installment basis if you stay with me for a number of years. Earnouts are typically used when you want to reward a company as a whole for hitting performance metrics after the closing. So common earnouts might be revenue-based earnouts or product milestone-based earnouts. But the idea is, hey, if after I buy the company, I end up selling more of the product than I thought I would or that you thought I would, I'll share some of that upside with you through an earn out.

43:26And then the final one you said was rolling over equity. Rolling over equity was just another mechanism for retention. So usually there's some amount of unvested equity in any target company because the targets themselves were issuing equity. So what was very common to do is instead of paying all that out at closing, the acquirers would basically take that equity and say, we'll just convert your old invested equity into invested equity of our stock. And that way we'll get to preserve some of the retention benefits of that. So that was just together with the RSU pool I talked about together with revesting.

43:58Rollover equity is just the third mechanism that acquirers traditionally use to get at the solution of how do we keep these people who are making large amounts of money? How do we keep them in their seats?

44:10Derek Liu:And you're moving existing equity over. Revesting is creating something new here. Yep. And then that is based on just continued employment. So it's essentially based on employment at will. But if you walk away from this, you're walking away from your revesting schedule. 100%. And people in these transactions, there's so much money at stake that people have pretty extensive fights about what happens if you fire me? What happens if you fire me for cause? without cause, good reason, no good reason. There's pretty substantial fights that happen. So much of the money is now at stake as a result of the revest and the RSU pool and the equity rollover components all added up together.

44:51Derek Liu:A lot of lawyers negotiating some, now employment agreements are getting serious. Well, that's the thing. I joked with my team. We're all trained as corporate M &A lawyers, but we all have to become benefits lawyers in a sense because as these transactions move from being a corporate transaction to an employment transaction, it's incumbent on all M &A lawyers to get literate with what's the definition of cause? What's market for that? It's going to have to become part of our repertoire. What are the big things you end up negotiating on these type of agreements? Let's take revesting as an example.

45:20The big things that typically get negotiated at the client's end would be things like how much and for how long. Those are the level.

45:28Derek Liu:Yeah, what's market? I feel like I'm going to say something and I feel like someone's going to quote this against me in a deal. Something's going to change in a couple months. The market, quote unquote, for product-based deals. I want to be very specific there. The market for product-based deals typically was about a 20 % to 50 % revest for somewhere between two to four years. That's what we guided our clients to as being within the 25th to 75th percentile. Obviously, there's extremes in both directions, but that's the bell curve in terms of what was market for product deals. For these acqui-hire deals, like I said, it's too early to tell what the market is.

46:08I'm starting to see people asking for much, at least much more, not much longer. The revest, people still tend to think of four years as being like the outer realm of what, how long you can revest someone. But yeah, people are definitely having conversations around, could we go above 50 % in these revests? As far as how the lawyers have fun, we negotiate things like acceleration provisions and cause and good reason and tax treatment. Those are the things that really get scrutinized pretty heavily now.

46:35Derek Liu:You don't have to give me a name, but what's the biggest deal you've seen for a talent? The biggest one out in the ecosystem right now is probably still the Metascale deal. That's$18 billion one. That's probably the single biggest one in terms of a primarily talent-driven deal. I was not fortunate enough to work on that. How big do you think that key team was? I don't know off the top of my head. Certainly the ones that we've been doing,$300 million,$400 million. dollars. There's people paying real money for these talent transactions. Yeah. I want to go interview one of them. If anybody knows one of these LeBron James AI engineers that got that big of a godfather deal, I'd love to interview them to get their take on how they priced them.

47:16Derek Liu:Maybe there's something to learn. And if anyone knows LeBron James, I too would like to meet LeBron James too. If they know LeBron James, we'll get him on the podcast and we'll contrast the two. How you negotiated your contract. you know. That's exactly right. I want to kind of take a lot of things we talked about and what I want to do is get a good sense of the timeline and how this flows. Yeah. I know your lawyer, I know you have a bunch of NDAs you've probably signed and client privilege. Let's just make up something. Let's make up, I'm running a tech company and I know pressure's on to AI, build, be competitive.

47:50Derek Liu:And I've identified a company where I just know they have these, I don't know people use the word rockstar ninja i don't know what the current buzzword for the lebron engineer and i want to pursue this deal i'm going to check on my lawyer first because sometimes i rush to put an nda on the table then my lawyer gets mad and they're like why did you run this by me before you sent this out yeah so i want to prevent that so i'm asking you what should be my step like how do i go approach them i want to get a sense of one what point do i get an nda what point should i be trying to just hire them directly versus look at this is more of an aqua hire deal And he walked me through some guidance.

48:25Derek Liu:This is not to be taken as legal advice. Yeah, yeah. Where I've seen a lot of these things start, particularly because of the people aspect of this, is that a lot of this ends up starting with personal relationships. And that's, frankly, a little bit different than normal corp dev. Normal product-led corp dev is your big serial choir. And you're like, okay, here is the feature that we're trying to buy. here are the five companies in the space that have that feature. And let's go down a list and let's see which ones work well for us. And for those, let's go make an outreach and talk to them and try to get to a price.

49:04That's the traditional path. Here, what's so different is because they're such talent-driven deals, it ends up being like, hey, of this pool of the LeBron James, Who does your CEO know and feel comfortable with? Because you're inherently buying that person. It's not the CorpDev-led, here's the Gantt chart of the five different names. It's like, hey, my CTO knows this person. We think he's going to be really good. We think we want him, by the way, usually him, unfortunately. But we want this guy to be the guy that leads our AI efforts. the outreach is very different because it's much more almost like MBA land.

49:50It's much more about like cultivating

49:52Derek Liu:that personal relationship. So I don't have to be reserved. I can go and say, go talk to that talent. Yeah, you can go talk to that talent because so far you don't need an NDA. But like I said, it's not usually in a context of like the first time you meet them and just saying, hi, I'm Joe and I'm Bob and I'd like to hire you to run our AI efforts. It's usually like, these are people that are already in your ecosystem that you've known from somewhere. And the conversation really builds as a relationship as opposed to as part of a banker-driven exercise. But get the conversation going, invite them to their office, talk about a roadmap, they get excited about it.

50:28Derek Liu:And then we start seeing, hey, there's some interest here. I'm not sure if I'm supposed to hire you directly or if I got to look up in this company. And when do we sign an NDA? Then they call you. That's such a fascinating dance right now. because to everything that we've talked about before, if you were just interested in LeBron himself, you might not do an NDA. You might just say like, hey, rather than keep going at your current thing, how about I just make you an offer? That puts an individual in a very tough position because he'd be basically screwing over his VC, screwing over his team. You could conceivably see that happening.

51:03Sign-on bonus. Yeah, here, let me just give you a nine-figure sign-on bonus. I don't need your team. I just need you. come over. More often than not, they will probably do an NDA. The NDA will probably have a non-solicit in it. At this point, you'd have to almost have to. Basically, once you've signed the non-solicit, at that point, the acquirer has to route the process through the company. They have to negotiate with the board. They have to negotiate with the founder.

51:28Derek Liu:If there's a non-solicit, then that wouldn't, like with India and California, that would still be enforceable. Yeah. A business-to-business non-solicit in the context of a sale of company transaction that is enforceable. Okay. So the non-compete won't hold, especially in California. The personal ones, yeah. But I guess in generally speaking, even though this wasn't in California, you'd probably still would lean more on this non-solicit as opposed to... If you're a target company and the value of your company is in the people for the moment, the non-solicit is almost mandatory at this point. Cool.

52:00Derek Liu:Good to know. I'm going to make sure. Make sure that all your employees are protected. Big time. T-SAN, it's a really big point that you're making. Non-competes, non-solicits that you enter into in your personal capacity. As an employee, as an individual, those are harder in California. The business-to-business stuff is easier. Okay. So then once you get an NDA, then it's like, oh, okay, non-solicits. So now I have to follow. Now you have to go through the traditional path of negotiating with the founder. And you're probably going to want to do that anyways. You don't want the reputation in the market as being someone that's just willingly going around and poaching people.

52:37But yeah, at that point, you're going through the process of signing the NDA, talking to the company, figuring out who their key engineers are, and then using that to validate what it would take to buy the team.

52:50Derek Liu:Then you're almost like a typical M &A timeline. You're going to go, ideally do enough diligence, you can put an LOI on the table. And then actually on those acquihires, what does that timeline look like going from LOI to close? We're getting a lot of pressure from our clients, to be really honest. It's got to be a lot faster then, because you don't have to do all the same commercial diligence. You would think. And this is kind of the conversation we have with our clients. And keep in mind, clients always want to move faster than their lawyers. The line from our clients is, what's taking so long?

53:18All we want are the people. Just go get us the people. That's literally the conversation. We have to explain to them, if you're buying the entity, we still have to look at the entity. So I have to look at all this wind down stuff that we were talking about. And then more importantly, clients, HR teams, they need time too. It's a non-trivial task to bring over 20 LeBron Jameses into an organization. You have to level them properly. You have to compensate them properly. That's an exercise that still takes time. The emphasis definitely shifts away from diligence and IP and all that stuff. But there's still a lot to do in between getting to an LOI versus getting to the team coming over.

53:56Derek Liu:And then all that, you still end up with a contract. I'm wondering if the purchase agreement looks different in terms of having the big emphasis on the talent. That kind of just depends on whether it ends up being a stock deal or an asset deal. Certainly, if it's an asset deal, it looks a lot lighter. If it's a stock deal, because we're still inheriting all the liabilities, we haven't really seen a shift away from, unfortunately, the 80 to 100 page acquisition agreement that everyone in Silicon Valley is used to signing nowadays. We still end up with that. Is there anything that helps you in terms of when you think about this deal, it's a collaboration.

54:30Derek Liu:You have different functional leads doing diligence. They're looking for some of the risk. They're figuring out how they're going to integrate the business, integrate these people, level set their titles. What are the key things that helps you when you're going through that? You know, like some of that input. What are some of those key things that would help tie that deal together nicely versus just sort of doing this in a silo? making more of a little bit of a pull effort where you're doing the deal versus you're pushing like, all right. What we've seen is that there's such a great amount of pressure on our clients' HR teams in a way that we end up having to help with them to a certain extent.

55:09If you think about it, in the old product-driven world, if you just bought the product, you could more or less just keep everyone at their same salaries because they're going to basically come over and they're going to do pretty much what they were doing the day before they came over. They're still going to be working on the same product. They're still going to be servicing the same customers. So there was less of a pressure, not zero, because it was always complicated, but it was like less of a pressure to get it exactly right. Now, because the people are the assets and you are doing the equivalent of hiring an entire NBA team all at once, there's such a stress on getting everyone's leveling correctly, getting everyone's base and bonus and RSU package correctly.

55:54Because if you hire over 30 people for a couple hundred million dollars and five of them leave because they're unhappy, that's a really bad day. We're seeing tremendous pressure being put on our clients, HR teams. And we as a law firm, we do what we can to help. And there's comp consultants out there that do what they can. But that's really become where the game is.

56:13Derek Liu:We're in a whole new market. Yeah, 100%. Product is a commodity. Talent is a new IP. Exactly. All right. Derek, I got to ask, what's the craziest thing you've seen in M &A? This goes back to when I first joined Baker and I joined in 2020, sort of like around the pandemic. And we were bidding on a company in bankruptcy. The way that asset sales work in bankruptcy is it's a live auction. The court puts out a set of documents. Everyone bids on that, marks that document, and then it has a price. And then it's a live auction. Now, and it used to happen in these bankruptcy proceedings, pre-pandemic and post-pandemic, it's a live process.

56:53But in this particular case, because of this pandemic, it was over Zoom. So we're representing a Japanese company and our clients are in a conference room on Zoom. Everyone's in their suits. And the other bidder, our competing bidder, was a German company. and we go, we show up to the bankruptcy auction. Our clients are in suits like serious, ready to bid. The other side gets on camera, their business team, and they're in a hot tub. The entire bidder management team is seated around a hot tub on camera. It was a total intimidation tactic and it worked. Because they came in, like I said, it's an auction.

57:38We put in our price. They came in and they just blew it out of the water. in terms of their next bid. Wow. And it was like one of those lower your mind kind of things, but it was a complete signal. We are so confident we're going to win this thing that we're going to do this in a hot tub.

57:54Derek Liu:A bid from the hot tub. Yeah, absolutely. Next time you want to intimidate someone on a Zoom call, keep that in mind. What would be the hot tub? The hot tub's up there. Yeah. Yeah, I like that. Derek, thank you so much for taking the time. Yeah, he's really patient. I did it. Better M &A scientist today. Learned a lot about acquires. Those of you still listening, my fellow M &A scientists, brothers and sisters out there, love to hear your feedback. I know I try to get different topic coverages. Let me know what you think about this podcast. You can reach me on LinkedIn. Just make sure you mention this podcast because I get so much spam on there.

58:30Derek Liu:But find me on LinkedIn. Connect with me. Give me feedback about this podcast. If there's topics I haven't hit on, criticism. I'll take it. That's how I get better at doing this. Until next time, here's to the deal.

58:53Derek Liu:Thank you for taking the time to explore the world of M &A with our podcast. We love hearing feedback. Tag us on a LinkedIn post, add a review on Apple Podcasts. We'd love to hear from you. If you need help standing up an M &A function or optimizing one that you already have, we're here to help. And if we can't help you, we probably know someone that can. You can reach out to me by email, Kisan, K-I-S-O-N, at mascience.com. Or you can text me directly at 312-857-3711. If you just want to keep learning at your own pace, visit mascience.com for a lot more content and resources. That's where you can also subscribe to our newsletter.

59:38Derek Liu:Again, that's mascience.com. Here's to the deal.

59:51Derek Liu:views and opinions expressed on M &A science reflect only those individuals and do not reflect the views of any company or entity mentioned or affiliated with any individual this podcast is purely educational and is not intended to serve as a basis for any investment or financial decisions