Managing Risks and Liabilities in M&A with Tina Kassangana

23:28Because anything else comes back clear and you can't sell it, doesn't matter. After that, it's the financial diligence, which our tax partner will deal with that, then it's the contracts. So I need to be mindful of your business, what clients and customers you currently have, because there could be a contract that company is selling that you actually can't acquire because you may have a restrictive covenant in a current contract that would prohibit you from being in business with this other contract. So that needs to be taken care of as well. That's the thing I got to learn as we built some functionality around contract analysis.

24:04I'm like, wow, every company, I never think about even our own company. There's so many customer contracts. There's so many employment contracts. Then every, like literally everybody, every customer has a contract. Every vendor has a contract. Every employee has a contract. I'm like, that's a big chunk of diligence to go through that. When you start thinking about that, like what are the ways you start thinking about like risk and liabilities with all these different contracts? How do you prioritize? Priority is actually with the structure. If it's an asset sale, I'm really going to look for the assignment clauses.

24:34If it's an equity sale, change in control. This is actually something that first-year associates learn. A clause that's assignment in AI would probably also have to be taught this. There's very specific terms where you may read a clause and think that's a change in control, and it's not. It actually just prohibits an actual transfer of the asset, not if the owners change. So there's that analysis. I also need to be mindful of any regulatory risks, depending on the business that you're in. So I'm also going to target that. And it also goes back to the LOI of what are your key markers and what do you really need?

25:09So I'm also going to look at loss runs for policies if we're talking about workforce. And depending on, again, your business, let's say there are three key employees that you want, right? And I'm going to also target for these three key employees, not just what are their salaries, etc. If I happen to notice that they have a workers comp claim that comes up every two or three years, I'm going to flag that for you. Why do you actually want this guy? There's something that's popping up here. So everything is tailored. What I'm looking for in diligence is what the junior is looking for in diligence.

25:42Based on that structure. Yep. So asset, they're looking for the assignments, equity, flash, stock purchase. Yep. Change of control, those other areas. So these are, makes a lot of sense. Yeah. Structure dictates like where you're going to start looking for risks in these contracts. Yeah. And your obligations going forward. So in some of these customer contracts, there may be warranties that you're making. Can you even fulfill those warranties? There may be indemnification obligations that you're going to be taking on. Is that a risk level that you're willing to take? There may also be insurance requirements in certain contracts that you may not have currently.

26:17So how are we going to deal with that? That's a lot of stuff to get ready for this purchase agreement. Yes. That's why there's many drafts that go back and forth because we're dealing with the information that's coming up in real time. So at the first draft, I may only have financial diligence, for example. And then I get customer agreements, vendor agreements, usually on a Friday night. And then I'm already thinking, okay, that needs to get changed now in the next draft of what's coming along. A good seller's counsel is going to make those changes with the documents that have been uploaded. But as buyer counsel, you also want to track everything that's coming in.

26:55What's the potential clause that this is going to trigger? What about the clauses that are more specific to post-close or minimizing post-close risk? Those are heavily negotiated. So that's mainly working capital. Let's use working capital. Working capital, exactly. That's what, 90, 120 days afterwards. words, you have to be explicit in what's the timeframe to give the report? What are the calculations? Is there a dispute mechanism? Are you going to go to arbitration? Have you already picked an arbitrator in a dispute resolution section in working capital? What are they looking for if you're going to go with an independent accountant, for example?

27:33Are they an independent finder of fact? Or are they just going to look at the purchase agreement? What are the definitions? Give me the numbers. That's it. So that's all of that mitigating all of that risk and the fights and the liabilities that are going to happen down the line. It's a lot of upfront planning for structure of if this, then that. Here's the resolution. Everyone's happy now. Everyone just wants to get the deal closed. But we need to get into those details. All the things that could go wrong. Absolutely. We spell them out. What does that look like in agreement? Is it a specific section to list all those out?

28:05Yeah. Is those all disclosures? So usually it'll follow whatever the issue is or whatever the topic is. So if it's working capital, it's probably a working capital mechanism, dispute mechanism there. Indemnification is another one that's heavily fought. Let's say there's a claim that comes in afterwards. Who's going to control that defense? Is it the indemnifying party or the indemnified party? Is that going to change anything? Do you get expenses advanced? Are there certain claims where you can get expenses advanced? Are there certain claims that are just barred? We also need to think about that.

28:38And that'll pop up in its own section of the agreement. There may be other issues like escrow releases. If there's that 10 % purchase price holdback, for example, that also needs to be set out in the escrow agreement of, okay, are we going to do joint instruction? Or are we just going to do, hey, here are the final calcs, send it over to the escrow agent and they shoot it out. But again, you have to think about all of these things. The good old indemnification clause. I love it. Disclosures, is that part of? Oh yeah, disclosure schedules is probably, I would say, the most negotiated bit. Teach me this stuff.

29:13It comes up all the time and I don't really know the mechanics of it. Disclosure schedules, the best way I can explain it, it's you're making a representation at a moment in time. So at closing, seller is going to represent to you that their tax returns are material in all respects. That as of this date, here are their top customers. that as of this date or between these dates that they haven't had any litigation, for example. But then let's say it's two or three months afterwards and then you get a claim, a litigation claim for something that happened during that time period. That's a breach of that rep.

29:49I want to tie the reps and warranty insurance on this because usually it's not like, I know we go to Canal Street and go buy the policy, but they do a bunch of diligence on their own. Maybe walk me through that process of how they actually build that policy out to tie together with these purchase agreements. Great example. I did buyer side rep and warranty insurance diligence. And it is, you want to talk about a detailed process. Everything needs an answer. And you're on a call. It's almost like a Senate hearing, quite frankly. You're on a call with the insurance company and they're going to ask you questions like, why are we seeing this here?

30:26There's a potential for liability here. Are you sure that there isn't anything here? Or we notice this, we're going to carve it out. And now maybe that's something that you actually wanted covered. So the thing about rep and warranty insurance, it actually changes how you address the actual rep and warranty section. So if you have rep and warranty insurance, you don't want to be too specific because if you're too specific, then it's carved out. If you're a seller, everything that you disclose on your disclosure schedules are carved out. So you want it to be as narrow as possible. As buyer, you also want it to be as narrow as possible because you want to be covered for as many claims as you possibly can.

31:03Right. Now let's take the rope and warranty insurance out. And now it's just seller has to indemnify us if something happens. They want the broadest disclosure because they're going to say, no, I told you. No, that's done. And it changes the mechanics like that. That's so interesting. I never thought about it that way. That's why lawyers are here. Yeah. I admit it. Lawyers do a good chunk of the work. Sometimes. You must do like 80 % of the work in an M &A deal. You guys do all the hard work. You identify them and we just have to make sure you guys get to the finish line. Yeah, as a principal now.

31:35I was going to say as a banker back in the days, we take all the glory and fame and credit. Yeah, I hesitate to do that because I wait until all the statute of limitations are done and the rep and warranty survival period is done before I start beating my chest and saying, yay, that deal closed. Just to make sure everything's fine. That's a good way to do it. You still get it at the closing table, the closing party. Yes. Yes, we still do. Sometimes, although with the pandemic, I missed out on a lot of the deal toys, a lot of the deal dinners, the$5 ,000 dinners, whatever. Occasionally, I'll be invited out.

32:09But I feel like I missed out on that really big era of closing dinners and toys and trinkets. Yeah, that's true. So let's bring that back. Essentially. I know. Do they cut it out? I feel like they... I haven't seen as many... I didn't look at your office. There's not... Where's all the deal toys? Yeah. You can go to the banker's office. They always have a big showcase as soon as you walk in. Honestly, that's right. Because every time I go to the bankers or we're on a WebEx call with them, I definitely see their deal twice. It's stopping there. We got to bring it back down to the lawyers. There you go.

32:37Force majeure and contingency clauses. How are they evolving? How are they used? Always evolving. The problem with force majeure, it tries to mitigate what it thinks it's going to see. So you think, hypothetically speaking, what could happen that's going to stop this contract that will stop me from performing? Oh, a global pandemic. You know, but you're also at the mercy of the courts who will interpret this clause to say is a pandemic the same thing as an epidemic. The thing with force majeure and the legal doctrine is you have to be explicit in what it is that you're carving out. So force majeure is fighting this tension of I want to be as broad as possible, but legally, I also need to be as specific as possible.

33:21But currently, we have trade restrictions that may be coming up. So we'll have contingency that actually comes up with that, where if post-close, there's something that happens. I'm going to speak very vaguely. There's an adjustment possibly to the purchase price. A lot of cybersecurity. So that's different. So force majeure and contingencies, if force majeure is like, hey, you can get out of the deal. Yep. If something happens, that's going to be in the purchase agreement. And then you're going to get out after you close? After you close, potentially. Yeah. So it's supposed to be like a... If there's a deal I'm trying to think of, if there's a deal that you cannot complete, like you paid X amount of money for it to close, and for some force majeure reason, you cannot perform, the party should be able to say, I can't perform this.

34:08It's done. I typically don't see it in a lot of purchase agreements unless it's in a highly regulated or currently litigated sector. So you'll see a lot of cyber, AI, tech that usually comes up at that point. And then the contingency clause, it's a little different. Yes. Hey, I can almost a little bit of a claw back on some of the terms if this variable occurs. Correct. And or if sometimes as I'm sorry, I put my seller's counsel hat on. You don't want to deal with that. You don't you just want to say, OK, what's the possible issue? So to give a concrete example, independent contractors classifying them that could change wages, finances, all the financial flow of a company.

34:52Right. And there's also depending on what are the penalties? How far back do they go? Who owes the penalties? As a seller, I would tell them, take X amount out of that purchase price, set it aside. How long do we think it's going to be able to resolve? Two years? Two years. That's all we're giving you. If anything pops up after two years, that's not our problem. But as a buyer, I don't want that. I want a contingency clause that's going to stay as long as the statute of limitations allows me to keep it in place. Because if it's year three and I can still bring in a claim, you better believe I'm bringing in that claim.

35:23Besides the table. Yeah. Do you ever feel you're like developing a jack-o'-and-hide personas when you sort of see it on both sides and you're like, ah, duh? Yeah, yeah. That's a mock trial in me. And if there are any astrology people, I'd say that's also my Libra moon. Being able to see both sides. It's exhausting. How can teams prevent conflicting clauses and deals with multiple agreements? What does that mean, actually? What's that question? So this is a very important topic when you deal with rollover equity, for example. You'd have like an agreement on the rollover equity. over equity. Let me frame it a little different.

35:56In deals that have multiple agreements, conflicts can come up. Do you have examples or how do you address those things? You have to create a hierarchy of documents. Who's going to talk about some main provisions? Dispute resolution, indemnification, governing law. That's probably going to go in the purchase agreement. In the other agreements, employment agreements or anything else, you're going to refer back to the purchase agreement. That's the simplest way to do it. But not everyone does it that way. And there are other terms that need to be adjusted in an employment agreement, indemnification if it comes up.

36:29It's going to be tweaked specifically for that. The issue that tends to come up is with rollover equity because you have these documents that they're not going to change them for a specific and as buyer counsel. I'm not going to have 10 different equity documents that I need to track. There's going to be one and you need to figure out how to fit into this one document. Now, counsel, buyer's counsel, I'm trying to figure out how to bring that document into every transaction. And there may be conflicting terms. So let's say an employee, a key employee has rollover equity. There's a clause for termination for cause.

37:05He gets terminated for cause. That then ties usually to rollover equity. Rollover equity may have some notice provision of triggering default, whatever. We need to make sure, is there a notice provision in the employment agreement? Is there a notice provision in the equity docs? There's actually an example where it was the reverse. The key employee wanted to leave and they had an agreement in their employment of this is how you need to leave. Here's the calculation, notice provisions, et cetera, up to the point of it needs to be FedEx mailed, blah, blah, blah, blah, blah. Now, as lawyers, we also have to look at the actual governing documents.

37:46So that's the operating agreement or whatever. And it will have its own set of rules. If the lawyer who negotiated was really on their stuff, they're going to say that the employment agreement supersedes any conflicting terms in that LLC agreement. So if that LLC agreement, I'm just going to say LLC, has a conflicting term, we're not going to go by it. Because then if we breach something, because now we don't know which one to follow. That's going to mess up my client even more. Then you run into, we need to draft a letter, get them to release and waive that if we do it this way, it's not a breach and that we're not in default and that they then can't take X amount of money out of the purchase agreement because of whatever.

38:28They can't touch escrow. Everything plays together and you have to be mindful of that. So if both agreements say that our agreement supersedes everything else, then you still got to negotiate it. That's when you pick up the phone and you call the other counsel and say, hey, we both know that we negotiated this. That's your equity doc. This should probably be the one that actually governs. What's your risk for me not following that? That's the question. It's a common sense. Yeah. Which that's sometimes it's hard to come by in deals. You got to go meet for a beer and hash it out. Yeah, exactly. So we have examples of the multiple agreements, which is a whole other dynamic.

39:09I'm thinking back to just things that pop up after the deal. A lot of it centers around rep and warranty or financial covenants. Earnouts are always, that's the big one. Earnouts and then equity agreements with employees. Yep. The jurisdiction and governance part of it, that I was curious about. Because we're looking at a company out of the country. When it comes to all this stuff that we're negotiating, we just talked about a lot. Yeah. What jurisdiction do you end up with? because I obviously want it here in the US. They're going to want it in their domicile. My hat on right now is as your counsel is buyer, they're coming here.

39:45They're coming here. They're coming here. That's where we're going to start. And if there's a reasoned argument, that's why they can't. For example, let's say that they're in some remote country. I don't know. Travel restrictions, for example. That could also be a thing that you do. Is that common? No. A lot of times in the US, it's always Delaware. Yeah. Yeah. The US is simple. As a buyer, I feel like I'm the one taking the risk. But the seller is like, well, it's my house. Now I'm going to jekyll and hide it. As seller's counsel, I'm going to say, if you're coming to me and telling me that I have an issue, the least you could do is come to my backyard so that I could have my resources and let's hash this out.

40:22If you have an issue, come here. Let's hash it out. Don't also give me the expense to then come to Arkansas, which has come up sometimes. Random states. International arbitration court in the Bahamas. Okay, so who's paying the flights? over Zoom. So it could also be a thing like that, where sometimes you have to figure out how to make it equal for both sides. So let's say you really want to do commercial arbitration in Bahamas for some reason. Seller is like, absolutely not. I'm not going to do that. They might say, let's do a prevailing party cost type of thing, where if I come down there, you're not only paying me what the judgment is, you're also paying my airfare.

40:59That could be something that's negotiated. Or you could say upfront, hey, I know that this is a crazy request to you, but it's really important to me. If something happens, I'm going to pay up front the expense for one person. Now see, when you start making offers like this, you have to be specific. One person, comfort plus, not first class, things like that. What are you willing to give to get that thing that you really want? It's a lot of negotiations. Honestly, it sounds like a lot, but when we really speak with clients, we figure out there's usually like three key core things where I know that at the end of the day, I can't deviate from these three things.

41:39And then there are other things that you may be willing to move the goalposts a little bit. I might use that in order to get you your hard three. We'll talk about it and it may seem like a lot, like in that scenario, the comfort plus whatever Bahamas thing. But is it more important to you, the Bahamas versus the indemnification survival period. And if the conversation that we had is a survival period, I'm going to tell you, give up the Bahamas and we're going to fight for a longer survival period because that's what you actually want at the end of the day. Sounds like a guidance. Going back to the earnouts and just equity agreements, what are the things that come up or the risks post-close on those?

42:18I hear about all the time. I hear especially earnouts. So often they end up in litigation and put the right things on it or integration sort of skews things. Somebody gets pissed off and lawsuits get filed. Then goes to litigation. But it's funny because we get looped back in because the litigators then ask us to translate the documents for them. What is this? What's EBITDA? And we have to now explain that per the agreement, they were supposed to do this and they actually did this. So the thing about mitigating risks with respect to earn out, it's again, being really specific at the start. How are we calculating it?

42:52What is the actual metric that we are looking at. I mentioned a little bit earlier, but profitability, top three customers, if that's what we're actually looking for. Who controls during the earn-out period? How long is the earn-out period? Seller is going to want as much control over that. But as buyer, this is your business now. You want to take control of it, but you also want to be mindful of, you don't want to make expenditures that are going to screw the earn-out over because you also want to keep that relationship going great or going well, at least, because they're probably employed with you, the key principle.

43:30And you want to keep everyone happy as much as you can. Another thing about risks mitigating and earnouts, you can't go all or nothing. A sliding scale is your best friend. And it makes it a lot more ploutable to, I missed the top metric by$500 ,000, but I'm still going to get X amount of money. Dang, even though I didn't max out my earn out, I still walked away with some cash. All or nothing is where it really gets nasty. And they're going to look at every single dollar that was spent to say, you did X, Y, and Z to make me miss that 500K. I kind of like bouncing between doing earn outs and seller financing.

44:08Earn outs are typically paid out annually. It seems like a typical term, right? One year, two years. Yeah, it's usually tied with employment. That's like a chunk at the end of the year, basically. versus seller financing. It's like a loan term. I'm going to pay you monthly with this much interest. Part of me doesn't make sense, but then the other part's like, well, I can buy more time if I just got to wait to pay the chunk out. Yeah. I think with the seller note also is, do you have any other debt? How does it play in your financing universe? Now I'm putting my seller hat on. I don't want a seller note because if you are a private equity fund, you probably have other debt.

44:41My debt's going to be subordinated. I'm going to be last in line. Right. It's money I'm probably not going to get. If I was wrong, yeah, you had a chance of not getting that money. Yeah. But as buyer, of course, I'm going to want that. You're giving me a seller note, how sweet of you, how kind. But I got maybe three other lenders that need to get past you first. And it takes me a little bit more time to pay X amount. If I don't have any other lenders, I can almost let you know you'd have first thing, basically. Exactly. And that'll make it much more attractive. And then based on your cash flow, you can figure out how long you need for the seller note.

45:12A good seller is going to probably ask for a guarantee. Seller notes can be used well, but it can get a little dicey. And also remember that relationship is now being prolonged even further. Employment agreements are now what, two, three years or five maybe. A seller note can go even longer than that. What are the terms you typically see on a seller note? I've seen five years. Yeah. Five years is probably your standard. You could push to seven. A lot of the sellers that we represent, they built this business, they're selling it, and they want to retire in two years. They get annuity out of it.

45:45Yeah. Also, because of that, we need to be really mindful of making sure that back-end money is available. Makes total sense. Anything around the employment equity agreements that pops back up? I guess it's more around what we talked about earlier. Somebody gets laid off. What were the terms around that? Yeah. If someone gets terminated for cause, if the other party wants to terminate for, they just want to terminate, what are the implications for that? There's a lot of negotiations with perks especially with sellers or key employees. As a buyer, you may say, hey, in our company, we have X amount of holidays, etc.

46:19And I need to keep it uniform. So no, you can't have 40 days off. I also need you here. That's more cultural risk and employment agreement risk that kind of ties hand in hand. And the employment agreement risk along with the equity risk that we touched a little bit earlier is what happens when this relationship ends. Do they keep their equity in the company? Can they be redeemed? Do they have to force you, buyer, to pay it back or to buy those shares back? And what's the valuation at that point? And again, that's something that we need to talk about now and not later. Covered a lot. I liked how we went back and forth, both sides of the table, jackal hide.

46:56If we were going back and putting more of that seller cap on, what are some of the key things that you would highlight in terms of things that you would really hone in on? If I was going to sell a business, and I'm creating a scenario here, we had a corporation that wants to acquire us, which is like flattered the big check in front of us. Hey, we're going to give you this amount. It's like, whoa, hard to say no to that. What are some of those things? Because I could see the beginning glossy eyed over just getting the check. But then all of a sudden it's like tied to this earth now, tied to this, this.

47:26It's like, you're actually only getting this little check at closing. And I'm like, well, what the fuck? Putting the seller hat on, at the beginning, we often just tell them like, please don't give up. Like especially at the end, deal fatigue is a real thing. That's a big thing that does not get talked about. Like when you sell a business, oh, wow. Yeah, yeah. You are exhausted. You've been pouring through diligence. You've been negotiating the business teams. You've been paying your legal team and the closing's not in sight. You start feeling like, is this ever going to happen? My wife wants a vacation.

47:58You know, like I need this to close. We should start like a therapy consulting company just for that. Yeah. People going through the sell side process because it is, you're paying all this money out. And sometimes, you know, a banker is going to want you to do like a seller QOV. You're just like, you got them on retainer. You're just like, ping, a lot of money out. And then the fact is the buyer's got a whole army of people running and doing diligence. And it's just you and the CFO and maybe one or two other people. Yeah. It's intense. Yeah. Or asking for a document that you're like, what is that?

48:27I don't even know what you're asking me for. Or audited financials. I didn't audit my finances. More smaller mom and pop companies, kind of things like that. But I would advise the one thing is that deal fatigue. Is to just be mindful of that. Diligence, it's going to piss you off. When you get involved on the sell side, if I got the company approached, we got an NDA, all of a sudden they got this LOI they sent. Do I call you and say, hey, I got this LOI, we should review it together? Or do I just sign it and then call you? So what should they do versus what they actually do? They should call us once they get the LOI, not signed.

49:00Because we can still negotiate certain things at that point for you. And already set the table of, this is not going to be a walk in the park. I don't care how big the check is. I understand you guys want X, Y, and Z, but we need to protect our client. An LOI that comes already signed, our hands are kind of tied. And at that point, again, we're going to ask for that second NDA to make sure if they get any confidential information from you and this deal does not close that they cannot use it. I cannot tell you recently how many times it's happened. A buyer has contacted a customer or a vendor before the deal closed, before the seller even told the network that they're planning on selling, and it ruins everything.

49:39That's something I would do. I would like, hey, I want to do some customer diligence. I want to know how happy of a customer they are, how likely they are to stay. So you can do that, but you have to do it with seller's consent. You can. Okay. I got to let you know. But the seller is probably going to be like, no way, dude. No. I mean, they will figure out a way. This is your first opportunity to work really together business-wise. how are we going to approach this? You're probably going to have to make it nice and sweet of, hey, you're going to be working with me now. It's a good thing. And then seller is going to emphasize, we've had a great relationship.

50:15Trust this guy. Probably also going to work a little bit for this guy. So we're not going to be completely detached. So you want to actually communicate with seller. And then you may even find a third party that does a lot of this stuff. Cool. We got that. We got their second NDA. as a seller. We've talked a lot of the counterpoints that the buyers present, but you have to represent, hey, protect the seller's interest. Any other key things that are unique outside of what we just discussed? The diligence process, I would say, is different between buyer and sell side. Buyer diligence, like you mentioned, we're going to be communicating.

50:50I'm communicating with your business team. I need to have a more aggressive, I would probably say, analytical view of the diligence and how it works with your business and the purchase agreement. As seller, we're being responsive to you. So you're okay, you asked me for this, I'll give you that. If you don't ask that follow-up question, I'm not going to give you the answer. And that's that. So that's the difference already in the diligence. The problem is sometimes sellers just don't want to give any diligence or they just don't have it. You have to then figure out how can I get a responsive answer to this?

51:22So you'll have to have narratives or you'll have to have, for example, sometimes they don't have customer agreements. So they'll just have purchase orders or something or a handshake. and I need to figure out how long has this handshake been going on? How often do you pay this person? What exactly do they do? So we have to figure out that. On seller side diligence as well, I need to understand how your business operates completely. Buyer side, I need to understand how your business is going to operate in mine. If I'm sell side, I don't really care about how it's going to operate in yours. You need to figure that out.

51:52I need to figure out how this thing operates to get it legally ready to sell. That represents the seller's interest. Yeah. Those are the main things. We talked through a lot of the other clauses that come up and they ultimately just get negotiated. Yeah. As seller's counsel, we can go a little bit more working capital adjustment, for example. Yeah. I'm going to fight as seller's counsel that the way how we have done the accounting is the way it's going to be done. At that point, it's the way how an earn out is going to be calculated. I need all the numbers to match the same calculations because we can't do working capital this way.

52:28That's how we do it. You can't do it in the earn out the way how you calculate things. We're a big corporation and we know better. We follow all the gap accounting rules unlike you. But then we're comparing apples and oranges and it's not an accurate representation. That's why you got to listen to what we tell you. Because you're not actually, we're not going to get the full actual picture and we don't know how it's going to swing. So you may actually want it to be the way how I've been accounting. What's market? Depends. This is a really interesting thing because I feel like... It depends. It depends.

53:01What's based on? Is it like a LexisNexis database that we say, okay, according to LexisNexis, this is market. Or hey, we've done this a million times and this is market. What is market? So you can find market. And it's great that you asked that because as a third-year associate, it, I asked myself, how do I figure out what's market? People are talking about market trends. How do I keep track of this? Do I look at Bloomberg or things like that? There are databases online where you could look at trends, where caps are going up to X amount, holdbacks are going up to X amount, for example. However, you don't want to just go off of external numbers, though they can be guideposts.

53:40I'm really big on data. I am probably one of the rare attorneys, even though we exist. I love Excel. So I have my own personal tracker of deal sizes and different percentages. And how did we negotiate reps and warranties? How did we negotiate survival periods? If we have rep and warranty insurance, did we change anything else that maybe in another deal we wouldn't have deviated? Market, it depends. It depends on the business sector. It depends on the size of the deal. Because some deals I've actually seen escrows go up to 20%, 30%. But again, it depends on the size of the deal. Have you used any AI on deals you've worked on?

54:16So I have not personally. I was going to ask, is AI going to figure out what's market? Here's the thing about AI. What is the data set? It's past. It's relying on that. If no one's going to update that knowledge bank, AI is not going to know what's market either. AI is going to know market at a certain time based off of whatever the model learned at that point. And things can shift and maybe the model doesn't update. Next thing you know. Somebody's going to market it though is that we keep our model updated in real time. As soon as like deals close, somehow we get that info and update our... I mean, I think you've just thought about something with SCC Edgar, if you keep a tracker on that.

54:55Yeah. Because it is all public on those agreements. Yep. Yep. Would you correlate it to private? Because again, like those little deals, all these things are very different. You could probably find certain terms that you could match with. But yeah, no, because sometimes with those public deals, it's just the disclosures and the financial requirements, reporting requirements, regulatory compliance that changes. Maybe they'll have an extra escrow for that and you don't have to account for that. So then you'll be like, okay, in my agreement, I don't have to take care of that. But at the baseline, what was the purchase price?

55:26What were the percentages? Did they get rep and warranty insurance, et cetera? Yeah. To be continued, We'll see what happens. The contract analysis is the other big one that we're seeing bubble up more so. Generative AI has really made that effective. I got personally involved in developing that last year. And do you see that sort of coming in the field? I've seen it come in the field in the sense of a lot of panels talking about how AI is going to get rid of junior associates. You're going to get rid of the first and second year. I just don't buy that. Then you'll be able to, because there won't be any crop of future attorneys.

55:59but you'll be able to keep increasing your fees infinitely to paying like$50 ,000 plus an hour. I'd like to retire at some point. That'll be it. You just wake up, do an hour of work and you're good for a month. With AI in particular and contract analysis, it's good for those specific targets of change and control or assignments, insurance requirements, things like that. Very targeted. But let's go back to the mock trial analysis of understanding the entire universe of the deal. AI struggles with contextualizing some of the nuances of some of these contracts and how they play a role with the acquisition or the sale.

56:36And that's where things get a little bit dicey and that you need that human touch of, okay, yeah, this contract has a change of control provision. Yeah, we need to flag it. But there may be other things in the agreement that's implicating an indemnification obligation or something. It can help. I think it's a good complement. I don't think it's a replacement. Other thing with AI, I was thinking of just the regulations around AI. I feel like it's still pretty undefined and they're starting to define it, especially like in Europe. We didn't talk about the regulation changes in general, but like how do you sort of address that when you're thinking about the risks that come about potential changes in regulation, potential changes with just the way you reference AI usage?

57:16So that's contingency clauses. Okay, so we fit that in the contingency clause we talked about. Yep, and survival periods for indemnification if something changes. Okay, so we talked through AI. We talked through managing the risk, managing just the contract analysis. That's going to be interesting just to see what happens because things are changing pretty quick. The way for AI, at least the way how I envision it, I know that there are some attorneys who are just anti-AI, but hey, I have chat GPT on my iPad. I was going to say, you got to be using it personally. Like I pretty really, everybody is.

57:49I thought my 11-year-old son using it to do his homework. To do homework? Taking his picture and put it in chat. it gives an answer oh no i had such a confused moment because i didn't know to be mad or proud of him it's like both at the same time yeah like it's really efficient but you're missing the point like maybe you're onto something maybe you should just learn how to use ai better than everybody else and you'll be better off that way there's this weird adjustment period of figuring how ai is in our lives because it can do so much that it's overbearing it's like well what can i do as a human.

58:24But then the more we use AI, the hallucinations, for example, is like, wait, what's this? We're figuring out that there are limitations to it. Once we get some more of those regulations, more of the tech actually behind it, then we'll be able to figure it out. How does this actually fit into my life? Travel itineraries, 10 out of 10. I agree. I love doing road trips and especially when you're like, just give me the unique stops in between these cities. Yeah. Yeah. I recently did it because my best friend and I were going to do a quick little trip in Europe and I said, here are the main cities.

58:56Here are our main interests. I want cost efficient and I want fun. Give me an itinerary. And it gave me the best itinerary that I could not have come up with. AI has its place in M &A for sure. We just need to figure out what it is. And there's also confidentiality is the name of the game. Yeah. We're going to get to a point where we actually trust it. But it seems like we are in the big hype cycle, then the dust settles. There is going to be some significant changes in players that stand out. Yeah. And sometimes you just need to run that specific analysis of, give me all of the contracts. For example, I need every single contract that buyer in the future will have an obligation to spend more than$10 ,000 or something.

59:39You give AI that prompt, you give it the universe of contracts, it's going to shoot it out. But also you have to be very specific because AI may be like, there's an insurance requirement that's going to require X amount so that'll get it above the 10K. You're like, no, I just want it under this contract. So there may be some refining, but if very specified tasks, probably material contracts, that's where I'm seeing it really pop up. You want to come test our contract analysis AI? 1 ,000%. All right, let's do it. Tina, I got to ask, what's the craziest thing you've seen in M &A? I tried to think about clients and I'm like, nothing's really popping up and also out of the sake of confidentiality, whatever.

1:00:16But the craziest thing is always the attorneys on the other side who don't want to negotiate. We'll be on a call. Yeah, yeah, yeah, yeah. We'll do that. Yeah, yeah, yeah. We send the purchase agreement over with the things that we talked about and they all get rejected. And it's like we just said on a call that that was OK. I've had a deal before where I don't know if the attorney wasn't talking to the client, like their own client, but their client was talking to our client and funneling terms up to us. And we're like, are you sure? And then they're telling us, no, that's the deal. And then we go back to opposing counsel and they're like, that's not the deal.

1:00:54We're like, wait, wait, who lied to who? And now we're trying to figure out what's going on. And that's when you get the 15 people on a call, legals on, finances on, business teams on, just so that we hash out. What's the actual deal point? That is wild. I've heard variations of that happen quite often. I know you gave me an example. I'm pushing for crazier. There's also cash sweeps where you try to explain equity sell. You're not selling cash. Accountants, attorneys sometimes struggle with understanding working capital and the fact that you're not actually leaving cash, right? It's accounts receivable, accounts payable.

1:01:30Things need to balance out. And then you will do a cash sweep. But sometimes, not sometimes, but there was a scenario where someone swept twice. And so now they owed the other party X amount of money. And it became this whole litigation thing. Wow. Where it was like, you knew you weren't supposed to take that money. What do you mean you didn't know that you weren't supposed to take that money? Getting greedy in the wire. Oh, yeah. That buying a business but not having the requisite permit to actually conduct the business. And then the person that has the permit wants to retire. What do you do then?

1:02:02Did you not do your diligence before? But yeah, there's that. I can share with you my craziest closing story. Let's hear it. This is actually the rep and warranty insurance deal by side. And there's a certain point in a deal where it does not matter how thorough your memo is, you can't step away because you have so much knowledge with respect to this deal that you can't have someone step in if you need to go away for a vacation or something. I had a wedding in Mexico City that I just could not, I couldn't miss. The closing kept getting pushed back and pushed back. And I'm looking at the calendar and I'm like, this is going to hit in Mexico City.

1:02:41I just, I know it. Of course, it's the third dam in Mexico City. We have to close the deal now. I'm on my way to the pyramids, a UNESCO world site. And I'm in the back of an Uber on a Mexican highway closing a deal. And I just, I have a picture of me with my laptop in the Uber. And I just remembered closing the deal, releasing the signatures, the wires get funded. And my boss was like, please drink all the tequila for me because it was a long deal. I'm looking at the pyramids, not the pyramids, the temples. And I'm like, I bet you they were not thinking that someone's going to be here that just closed an M &A deal with a laptop in the back, like, you know, and just doing some follow-up post-closing.

1:03:25Let's make sure we send the closing binder, stuff like that. But yeah, that's the craziest one. The back of an Uber on a Mexican highway. It's transport right into ancient history. Of course. Yeah. Yeah. It gave me a really nice perspective on life. Tina, this has been an awesome conversation. I really enjoyed it. You've helped me become a better M &A scientist. Oh, I appreciate that. You've helped me as well. I shared this with you when we first connected. I heard about your podcast on the Netflix show, Partner Track. And that was also at the time where I was looking like, what's market? I don't know what these things are.

1:03:58And you had a bunch of these like senior practitioners and even still now speaking about these topics. And I'm like, wait, I don't know what that is. And wow, years later, look at me now. I love that came full circle. For those of you who don't know, we had a cameo in a Netflix series called Partner Track, which is like a rom-com that takes an M &A law firm. I highly recommend checking out episode one and pay attention 20 minutes in the first episode. We're plugged in there nicely. And from that, we've had a lot of attorneys, I've noticed. I was like, well, I got to make a point to interview attorneys.

1:04:25And full circle, you found out the podcast. It was a phenomenal interview. And you're recognized recently as one of the up-and-coming rising stars for NYC attorneys. Yeah. So really honored. that make this happen. Those of you that have listened this far, I love you. Hello, M &A scientists. Hit me up. Tell me what you thought about this interview. That's why I get feedback, to get ideas to do these podcasts. Give me a sense of what topics to cover, things like that. Or give me criticism. I don't mind. I'll take it. That's how I'm going to get better at doing this. Reach out to me on LinkedIn. I love hearing from folks that listen to the podcast.

1:04:59Until next time, here's to the deal.

1:05:13Thank 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.

1:05:58Again, that's mascience.com. Here's to the deal.

1:06:20Thank you.