The Challenges of Cross-Border Deals

22:10We sat with a client from the Far East a few years ago who just bought an Israeli company. And then we were talking about the local holidays here. In Israel, we have a large number of local holidays that come out every year in the fall, right after the summer. And these are holidays that are on the calendar. They're in the law. They're not going to change. They actually have biblical origins. They haven't changed for thousands of years. And so the client listened to all these holidays he's going to have to close down his company for. And while on the one hand, he was quite shocked on the other hand, he took it in good cheer and said, maybe I should move to Israel.

22:43I would enjoy having those holidays. So I appreciated his recognition that he's going to have to work within those local constraints. And the company is very successful, even with the holidays that the local holidays have. In the end, they're not so much worse than other countries. They just tend to be a little more concentrated in his country. But I always say another situation I remember very well in terms of having to be a little flexible in terms of the negotiation process. As I mentioned before, negotiation is almost always conducted in English as the international language of business. But I can remember working on one negotiation that was with a local company that was not at all a high-tech company.

23:17It was very much a basic industry company. And that was important because the managers of that local company were not at all familiar with most business concepts, certainly M &A concepts that a U.S. person in the field would see all the time. If you're in the high-tech business, even from your first investment, you're going to know what M &A is. You're going to know what registration rights are, co-sale rights and all that. But this was a local Israeli company that a U.S. private equity fund had taken interest in. They didn't speak the same language, not just in terms of Hebrew versus English, but in terms of concepts.

23:48The Americans would sit there and say, we want to have a rofer on that for their right of first refusal. And the Israeli looked at his lawyers and what is a rofer? I know English, I know, but what does that mean? And the negotiation was very difficult and strained only because they were so far apart and understanding each other conceptually. And I can remember very well in one of the sessions, which was going slower than everyone wanted, I turned to my, I was representing the US private equity fund and I turned to them. I just went like this, hold off a second. And I turned to their Israeli counterpart and I started speaking in Hebrew.

24:21And we then had about a 20 minute discussion in Hebrew. And then we went back to English and I apologized to my clients afterwards. I said, I know it's very rude when you're here and everyone understands English for me to conduct a negotiation in Hebrew. But I really felt at that moment it was necessary to get past the roadblocks that we were facing. And the clients, they looked at me and they smiled. I said, no, it was no problem. We noticed as soon as you switched to Hebrew, two things happen. First, the volume went way up because you Israelis are high strung. This is the Mediterranean. You're screaming at each other.

24:54But second, we saw things went much quicker. Getting past the language gap allowed us to move much more and more quickly. So they had the good sense to let me take that off and leave them sitting there staring at the ceiling for 20 minutes, not understanding a word, but realizing that it was the best thing for the deal at that time. How would you contrast the differences when it comes to negotiations between what you've experienced in the U.S. versus Israel? Like I say, a lot of differences in terms of how people conduct themselves. And as I said before, Israelis are direct and they can be demanding.

25:26And at the same time, they're expecting the other side to react the same way. So they'll expect what might be a long process. They'll say that we want to get the deal done in 48 hours, but they're going to negotiate like it's going to take forever. So often it takes longer than it should, just because of those different expectations, different. And people, sometimes people get offended and walk out when they shouldn't. Or sometimes they won't get offended, but they'll make it look like they're offended and walk out because it's just a tactic, which I don't like, but it does happen. I would say in terms of other aspects of the negotiation process, it's improved immensely because of Corona pushing us all to work on Zoom.

26:03And we're finding out that we can get a lot more done in virtual discussions than we thought we could. And that's been a big improvement over the last three years. Deals that would have been done by meetings that would have added so much time to the whole process, having to get in a plane and travel and go to your hotel. And people are realizing that they can work virtually, if not 100 % as well, 90 % as well. And that's good enough to save you the burden of the traveling. That's especially crucial with international deals. If you're all sitting in Chicago when offices that are not far from each other, it's not a big deal to get into a taxi and go visit the other guy.

26:40But when you're doing deals that are cross-border basis and you're very far from each other, the ability to get things done in virtual meetings is crucial to save that time. So that's been a big change I've seen in the last few years, which is not going to go away. People still do have face-to-face meetings, but it's like they give a thought, why do I need to do that face-to-face meeting? What's the extra advantage? Does it really justify the extra cost and time It's going to be required for that. Is it that you net see an increase of interactions through all these Zoom calls that you're able to get more comfortable, get a better understanding the cultural differences, things like that?

27:15People will get to know each other more quickly that way because they can speak more frequently. It can drive me crazy when deals will have, instead of weekly catch-up calls, let's speak every Monday, Wednesday, Friday, see where we're holding because we can. And so it takes a lot of time there. But on the other hand, they're getting more familiar with each other. So people who've never met each other face-to-face will still feel that they know the other person. They do know the other person. They've spent enough time with them that even though they're from very different cultures and different backgrounds and never sat in the same room, they can find a very good common modus operandi to get something done.

27:49It sounds like Israeli companies are usually on the acquiree side as opposed to being the acquirer. But I was curious to know if there is a difference between the way you do LOIs, the way you present offers. I don't know if you've seen any differences country to country. It's interesting. So first of all, certainly you're right. As I mentioned earlier, Israeli companies are more likely to be the target in the acquisition rather than the purchaser. I still hear deals sometimes where people say there's not an acquisition of one by the other. It's a merger. We're equals. But there's no equality in an M &A deal.

28:23It's just a slogan. and you sell to the target's employees so they'll feel that they're not being swallowed up by someone else. And so letter of intent is a key part of the process, obviously. The letters of intent almost always originate with the purchaser. To that extent, we see them dictated by the foreign purchaser, by the US or UK or European, wherever they're coming from. And they're probably not that different from what you see in domestic deals in the US. The one exception is we do see sometimes auction deals where the Israeli company is the target on the one hand, and they're running the process because they've made a decision that it's the right time to be sold.

29:02And they've hired a banker and asked that banker to run an auction for them. And so with an auction, then it's the target who's really dictating the terms. They're saying, these are the terms on which we're willing to be sold. You come back to us, you various purchasers, and give us your dollar value that you're willing to place on these terms, and then we'll consider it. You may want to try to change the terms also, but we may not accept that. And we may not be willing to listen to even accept your bid if you've changed too much. So we do see some of those deals with the auctions. But even then, to the credit of the Israeli companies, they tend to take an international banker to advise them on those auctions.

29:37So they do fall within the parameters that the foreign purchasers are used to seeing. So in that sense, it's a relatively sophisticated market. Okay, so it sounds like there's pretty general key terms that get negotiated in a similar way. What about the pricing negotiation? They're real hard at this stuff. Yeah. Is there some key differences you see there? If I look back to my previous life as an attorney in the U.S. working primarily on domestic deals, we're working on deals with very large companies. They don't need their lawyers to assist them in the pricing negotiation. And they generally won't even call the lawyer until they've agreed the price.

30:10And by the time they pick up the phone and call their lawyer and start incurring legal fees, the key terms have already been agreed, the key commercial terms. The lawyers may not be a part of that process. In Israel, it's different, especially if you're on the target side, because you're dealing with companies that the management has never been party to an M &A deal before. It's often a founder who created the startup company and took it to a certain level, and now he's selling it. And this is his first M &A deal ever. So he'll want his advisors to be with him from the very start of the process, throughout, even at the basic price negotiation.

30:44So we get to see more of that here, which is more interesting from the legal side, not just to fight about the indemnities and the representations, but also to watch the price negotiation. Ultimately, I don't know that it's that different. Price, at the end of the day, is a bottom line dollar figure. And either you can reach agreement on it or you can't. You might have certain ways of bridging that gap with things like earnouts, which we do see quite frequently, where the target's saying we're worth 100 million and the purchaser's saying, I only see 80 million based on reasonable projections. And the target says, but my projections show much more.

31:18So the purchaser says, fine, let's do an earn out. And if you really meet those higher projections, you'll get the full 100 million because we'll structure it that way. And if I'm right and you're not going to meet those projections, then you'll get the 80 million. That theoretically works in a commercial sense to bridge that gap. From a legal perspective, it's very challenging to make that work properly because once the target company is sold, it's the purchaser who's running it. And they may not achieve the targets because the purchaser didn't run it so well. Or maybe the purchaser changed his mind, decided he didn't want to focus on that field.

31:48So there's a lot of negotiation over that, but it can often be used to bridge the gap. I hear it's probably the gateway to litigation. Yes. And by the way, in a cross-border deal, that's one of the key negotiation points from very early on. You're worried it's going to end up in litigation. It's what's the governing law. If a New York company buys an Israeli company, is the deal going to be governed by New York law, by Israeli law? if you reach a dispute, is it going to go to New York courts or Israeli courts? And those are different questions. We might agree that it's going to be New York law, but if there's a dispute, it goes to the Israeli courts because the Israeli courts will rule on New York law.

32:24Or it could do the opposite. We could say Israeli law, but it'll go to New York courts and they will be willing to rule on Israeli law if they have to. They get legal opinions. Or should we go to arbitration? And these become crucial issues for targets in particular. An Israeli company, their greatest fear is they have to go to court in the United States. They're convinced that the expenses will be so great that if they're sued, it's an immediate loss, that they won't have the ability to contest the litigation there, and therefore they will lose. So they will stand firm very often on having Israeli courts resolving disputes.

32:58So they're convinced in Israel, they're lawyers, they know what the costs are, and they can control them. So what's market when it comes to jurisdiction? So market is to fight about it. Really? Market is who's got greater bargaining power. Wow. But those issues are often addressed at the very beginning. They're in the term sheet. The term sheet, we usually say what's governing law. So we discuss those early on, but you have to see who cares more, who wants the deal more. And ultimately, it always gets resolved, but there's no set formula there for that. Tell me more of the stereotypes you hear from Israeli companies about American acquirers, investors.

33:30Let's check it out. This will help our listeners. Most of the world, and I realize I'm generalizing here, the world wants to be America. America is the greatest success story ever. No one looks down at America. We all, from a consumer society, from telecommunications, media, everyone is influenced by what goes on in America. Everyone wants to be like America. So when you come here as an American, my sense is you're generally pretty well respected here. I hope you felt that way in your stay in Tel Aviv. They're glad to see foreigners coming here. They're glad to see Americans here. So I think Americans get well treated in the negotiation.

34:05There are some Israelis who will think they can outsmart everyone, and they'll certainly think that they can outsmart the American. If you get the sense you're dealing with someone like that, I'd stay away from them with a 10-meter pole because they're probably not the right person to do business with. But for the most part, as an American doing business in Israel, you're coming with a lot of credibility, is my sense, and generally will be respected. All right. By the way, I'll just add one more thing there, which I do tell U.S. clients, if they end up in court in Israel, if let's say there is a lawsuit, let's say they did agree to Israeli jurisdiction because an American obviously has his own reason to fear going to court in a foreign country.

34:43And one thing I tend to tell my American clients is that there's no real home field advantage in Israeli courts. You may think if you're having a dispute with a local company before an Israeli judge, that Israeli judge will favor the Israeli party. But that's not necessarily the case. We don't see that at all. We see courts who are very glad, the judges are glad to see that foreigners are doing business here. And as long as they think that they're respectable individuals, we'll give them very much a fair shake in the local courts. So that's a key part of the business environment here is that the courts function well.

35:14What's like the timeframe of the way the courts get done? Because I know you take India, for example, like you're not going to live to see what the results are. You're talking 20 years I've heard for, yeah. I think we're talking three generations. I don't think your kids will even see the outcomes. Yes. So we have some cases like that here that do go on forever. Some famous criminal cases that have gone on for or are going on for many years. But for the most part, it will take longer than the U.S., certainly longer than some jurisdictions in the U.S., which have very good, efficient courts. I tell someone you're sued, you're not going to get a verdict for two years, which could easily be the case.

35:49That may cause fear. It may not. They may be very happy to stretch it out, depending on the type of litigation. But usually it will get resolved. It will take longer than they'd want it to, longer than it should. But often, in most cases, it will never come to a verdict anyway, because the effect of that process will be to push the size to a settlement, just like you see in the vast majority of U.S. cases. One of the changes the courts have made recently is to require parties to engage, at least consider engaging in mediation at an early stage in the dispute. And if you have a good mediator, they can often help parties reach an accommodation without having to go through the whole litigation process.

36:25And I've seen some very good examples of that where mediators were able to find the point of overlap between parties that are far apart and resolve disputes more quickly. So that's a good option, using like a third-party intermediary? People use arbitration too, but that can never be forced on someone. We do often include arbitration clauses in agreements. Even if there wasn't one, the parties can agree at a later date to arbitrate, and that can be much more quick and efficient. But again, that requires their agreeing to go that route. What other comes up from the legal side that's nuanced to cross-border deals?

36:56And jurisdiction is obviously a huge one, but what are other ones? There are issues of indemnification and how long you're going to have exposure. Is there big differences around? We're very influenced by the U.S. in particular and how long there's exposure. But one of the tough things is that we have in Israel a different statute of limitations. Most contract claims and other exposure is a seven-year statute of limitations. Wow. Now that causes fear in the eyes of a purchaser. They may normally be willing to take indemnification that lasts for 18 months or two years. Three years is a long time.

37:28But when you tell them you're going to have three years of indemnification coverage, but you may get sued for something five years later, they're not going to be covered. Because let's say there was a claim for breach of contract that dates back to before the acquisition, and you had three years of indemnification, but those three years have passed, and now you get sued for something that happened five years ago, and it's within statute of limitations, and you're not covered. You're totally exposed there. Now, I think a seven-year statute of limitations is crazy, but no one's asked me here to change the law.

37:58But that is what we live with. On the other hand, it's highly unusual for a claim to show up five years later. Even though legally it can show up then, it's highly unusual for that to happen because no one has an incentive to wait that long. If they have a claim, they'll want to bring it as soon as possible. So usually we see those claims much earlier than waiting the five years. And then one other point that's important to mention in this context and that I know the U.S. has been doing this for a long time, which is reps and warranties insurance in M &A deals to simply take the identification discussion pretty much off the table by having a third-party insurer take responsibility for those reps and warranties.

38:34And Israel has very much caught up with the U.S. and the London markets in terms of getting that insurance available. And that's gone a long way towards easing some of the negotiation process. When at the end of the day, both sides know what their exposure is. they've put it off to a third party to the extent possible. I admire the insurance companies. They know how to innovate. They can find a product to fill a need. In a sense, really, they're making up for the failures of the attorneys that we sit and negotiate these indemnities for a long time and put fear in our clients on both sides. When it's a practical matter, most of the time, the vast majority of times, nothing happens, which is what the insurance companies realize.

39:11They say, there's not that much exposure. We can buy that exposure for the few cases where claims are filed and we'll come out ahead with the premiums we get on the vast majority of cases where there are no claims filed. Makes a good bet and both sides are happy. Yeah, yeah. And that's the nature of insurance, of course, is to play on the uncertainty and the fear that each side has, that each side is risk averse. So the insurance company knows how to modulate that risk much better. We talked about jurisdiction. We talked about identifications. What else can I learn from you? I'll tell you one thing, again, on the cultural side, is confidentiality.

39:45In any M &A deal, it's often crucial that the negotiation process be done in a sterile, confidential environment without any leaks. If you're a target company and employees find out that you're negotiating to be sold, that can create a lot of uncertainty. People may get worried about their job certainty. They may start sending out resumes. You may lose some good people because of that getting out. On the commercial side, if your customers hear rumors that you're going to be acquired by someone who may be a competitor of theirs, they may walk away from you, even though that deal is only a rumor and it doesn't happen in the end.

40:18So it's very important to keep things quiet. And unfortunately, in Israel, we're a society that is riddled with leaks often. And it's not just the business environment. It's politically, it's the judicial environment, everything. We have, unfortunately, too much of our share of leaks. And that can be very hard for doing business in an M &A deal. A client from abroad, he's used to everyone keeping things totally quiet. And then he'll find out suddenly that the letter of intent that he sent and marked confidential and made it very clear to the target that's confidential, that there's a report in the local press.

40:51Actually, I can very much remember this. In the old days, when a major client from the US, a major multinational contacted me, they sent me, this goes way back. I remember getting a fax from them saying, we're looking at this Israeli company, please check conflicts. but it's super confidential. Make sure that no one finds out. And I wrote back to them, sent them back a fax saying, thank you very much for your inquiry. We'd love to represent you. And we will, of course, keep this confidential as in all our client communications, but I'm attaching a copy of a story that appeared in local press today with all the details of the deal you want to do.

41:25Of course, they had no idea. We translated it for them and they were shocked. That goes back 25 years, but things haven't changed that much. And if anything, it's gotten worse because of the ability to leak things in so many ways. And so then you have to ask, why is someone leaking? Sometimes they're leaking because they think they're going to get some negotiation advantage. Sometimes they're leaking just because they enjoy it. And sometimes it could be someone who just feels powerful having information and sharing it with a friend who's a reporter and there's no real logic to it. That can be very difficult to get used to.

41:56And again, I can remember working with a multinational corporation that was negotiating to buy a company that was a subsidiary of an Israeli public company. And unfortunately, the Israeli public company, the management there was leaking every stage of the negotiation, presumably because it raised their stock price every time there was a leak that they were about to sell the subsidiary. And it drove my client crazy. And to the point we were actually once sitting in a negotiation room, this was a physical negotiation pre-corona in London. And we take a break from the negotiation to caucus each side.

42:28And as we're taking the break, Someone looks online on their phone and sees a news report about where the negotiations are holding. Literally reporting it live almost as we're sitting there in London. It's showing up in the Hebrew press in Israel on a business website. And we confronted the other side and we sent a message to their banker saying, this has to stop. We can't go on negotiating. Everything's going to be leaked. The banker knew exactly what was going on, but nevertheless, did what his client said, sent us back a message saying, you're absolutely right. We are sick and tired of you guys leaking everything that's going on here.

43:00You must stop. And we knew where the leaks were from. They knew where the leaks were from. We had no way of proving it. And so that was their way of dealing with it, telling us to stop leaking. That was an extreme case. Wow. Yeah. Those are some big cultural differences. Yeah. Anything around doing diligence on deals that you see different? With the legal differences, you have to know, you may not know what to look for if you don't know where there's exposure in Israel. Israeli companies' law is very focused on related party transactions, for example. We've had an unfortunate history when Israeli companies first started going public, and they often had a controlling shareholder.

43:38There was a 100 %-owned company that would issue 25 % of his shares. He'd have a 75 % shareholder. And in the bad old days, that 75 % shareholder might use that position just to benefit himself at the expense of the public shareholder. So we have a lot of very strict legal protections built in the law now for minority shareholders. And that's important, but it can also drive you crazy. When you're doing a deal, an M &A deal coming from abroad, you may have no reason to suspect that. You say, listen, I'm going to buy this company for X dollars a share. We're going to do a separate deal with the controlling shareholder because they've got a control premium.

44:12We want to keep them as a partner or whatever. Those raised huge issues under Israeli law. You won't expect it. And if you haven't called your attorney at an early enough stage in the negotiation of the term sheet, you may miss those issues. I mentioned labor law, which I keep coming back to because it's crucial how different it is. But other things are, for example, land law. In the U.S., we're certainly, well, no to focus on things like environmental exposures. If the company owns real property, it's somewhat dumb chemicals there. In Israel, it's a different story. In Israel, the vast majority of the land is owned by the government.

44:43And the people who quote unquote own it really have long-term leases from the government. And when a foreigner comes and buys that company, they may have to get consent of the government under the terms of those long-term leases. They'll have no idea that's important. So again, totally different. And there's all kinds of historical reasons why the government owns the land here. They don't really make much sense anymore, but that doesn't change things. So you have to help the clients through that. Again, we still have, not every target company is a technology company. Often the land assets, the real property assets are a key part of it.

45:13So you have to understand what are they really getting? What kind of title are they getting? What kind of rights will they have? All kinds of other issues of different ways of doing business that will not be readily apparent to the foreigner coming to that country. Get counseling early. Yeah, you can never get them in too early in these situations. Let's say I'm buying an InfoSec company here in Israel. It's almost like I should get the lawyer before I turn to the target company. What's the right time? Do I get this initial conversation going and see that it's steering towards us putting an LOI together?

45:45And then, hey, let me give Cliff a call. Yeah, I would definitely get the local counseling before the LOI, before the first draft of the LOI is sent. So maybe we're heading towards drafting an LOI. Right. We've met with the guy. We've shaken hands. We exchanged a lot of business information. We signed an NDA. That's all fine. Bearing in mind what I said before about leaks. But nevertheless, he signed the NDA. And then when you think you're ready to move to the step of, let's set the terms of the deal, whether it's going to be an M &A deal or maybe initially be an investment followed by an option to purchase.

46:15We've seen those. Whatever it is at that point, speak to your regular lawyer and get the local counsel in the picture. because there'll be questions you don't know to ask even because you don't know how things are different in that foreign country. What's like the value of an attorney's experience? I'm listening to you and you got really good responses on this stuff. And it goes back to people ask me, how do I hire the right attorney? And that's my always vice, right? They're always like, I'm doing a deal. Just make sure you get a good lawyer. Above anything, as long as you get a good lawyer, you'll get taken care of fundamentally.

46:43The longer you've been practicing law, the more mistakes you've made along the way. And you don't learn from anything better than from your mistakes, right? because you hopefully don't make them a second time. Hopefully you're learning from others' mistakes too that you've seen. But it's, again, the more situations you've been in, the more stories you've seen, the more you're ready for the unexpected. You get like the business advice value. I think that's what you end up getting. At the end of the day, I often say, even though I'm a lawyer, I've been doing that for a long time. In some ways, I'm a glorified translator because I come back to the cultural differences and there are business differences and legal differences.

47:15But your job is to be able to explain it to your client in terms he understands. Give an example from litigation. If you're working, let's say it's gone the wrong way and we're in litigation, at some point the U.S. client will always say, can we get summary judgment on that? And Israel doesn't have summary judgment where you get a verdict from the judge before it's a trial. And so your lawyer has to know what summary judgment is to be able to tell you, no, and here's why, and here's how it works differently here. So you've got to be able to explain everything to your client in language that they understand, in language that makes them feel comfortable.

47:48that they're dealing with someone who understands where they're coming from. You have to gain your client's confidence at the end of the day. How do I negotiate my legal fees? Oh, you just tell what the lawyer asks. No, I want a deal. You just say, how much of a bonus are you expecting at the end if it goes well? It's usually hourly, but these fees have gone. I feel like post-COVID, rates have just gone up. Here, I'm going to put in the plug for all my fellow colleagues here in Israel that our hourly rates here are much lower than in foreign jurisdictions. Use your Israeli lawyer, whoever he or she is, to get the best deal.

48:20At the end of the day, every lawyer knows that you want a happy client. And part of a happy client is that they feel the fees that they paid were fair. No one likes to pay fees, obviously. That's fine. But that they feel that they're paying for the service they got. And a smart client knows that they're going to have to pay something to get good service. That if they're going to focus entirely on getting the best price, they're not going to get the best service helping that they need. And whenever I make a proposal to a client on fees, which is totally fine for them to ask me to talk about fees, I will always tell them, you will find someone else who will agree to do this for cheaper than I'm offering you.

49:00I'm not claiming to be the bargain basement lowest price in town, nor are the same colleagues I work with on these deals. And so if that's all you care about, then take that. I learned early. I always use this example of my 20s when I had to do my first contracting project. and I negotiate like hell with the painters and I end up with the worst painting results ever. And I realized like you don't want to leave negative sentiment. And then you're going to end up paying more to get the good painter back on top of the bad job to fix it. And you're going to end up paying more to get where you could have gone in the first place.

49:30So there's always framing has been around, hey, what's going to make you happy? Because it's got to work for both of us. Got to work for both sides. A smart lawyer realizes that and a smart client realizes that. But do people negotiate rates often when it comes to legal fees? Because let's say it's whatever, the round thousand bucks, people come in and say, oh, can we make it 800? Is that common? People will. And it's legitimate to talk about, is there flexibility here? Can you give me an estimate? Can you give me a cap? I like the estimate caps. I think that's important. So estimates are certainly reasonable.

49:57You know, that's to be expected. They want to have some sense. And often, especially if they're used to paying the very high rates that they may pay abroad, they come in afraid, which is totally legitimate. What's that bill going to be? So they have to ask questions. At the same time, when we talk about caps, I said, so if I hit the cap, you want me to work for free at that point? Is that what you're saying? But again, caps are legitimate, but they've got to have clear assumptions built in. That is probably a good practice. We did it recently. We set up equity for our company. I remember getting the engagement letter and skipping a few beats when I saw the hourly rate.

50:25But I reached out to the partners. He's like, oh, don't worry. Here's our fair estimate of the time it's going to take, which was only a few hours. I was like, okay, this... But those are important conversations. And there's no reason for the client to be in the dark as to what the expected legal fees are. It's totally legitimate. Whatever the hourly rate is, what's more important is what's it going to cost in the end and what are you getting for your money? So those are key questions. And then you never come back and surprise me with three times. Then comes the bill, yeah. Or you at least give me a heads up, ideally, saying, hey.

50:53When we do give an estimate, we try to say, if we see it going in a different direction, we'll tell you the earliest opportunity. But that requires keeping your finger on the pulse, which when you get caught up in the busyness of a deal, you don't always keep your finger on that pulse and that's not good. I like this. So my takeaway tips for negotiating with counsel, hourly rate may not be the core area to negotiate on, but there may be some room there. Otherwise, get that estimate of hours, at least know. Get regular updates. And one of the big differences between a strategic purchaser and a private equity purchaser is strategic purchasers usually build every month.

51:25So at least they see where the fees are holding. Private equity may not come till the end of the deal because they're only going to raise their money from their investors for the closing, which is fine. But if you want updates every week or every two weeks, that's also legitimate. Do you see things moving to a fixed price or are they just hard with M &A? It's very hard with M &A because, exactly because it's all over the map as to how long the deal can take. And even the most good faith estimate that we're going to get this deal done in 72 hours may take four months. It's very hard to do them on a fixed price.

51:56There are other kinds of deals. We're doing a private investment, a venture capital type investment. Those deals follow certain set patterns. And once the clients have agreed on the basic term sheet, it should be pretty clear how long it's going to take. Those are much easier to price out on a fixed price basis. All right. That's the best advice on this podcast so far. Dollars and cents. What can matter more at the end of the day? I don't know if this question makes sense to even ask around how do you handle integration for cross-border deals? Do you get involved with that at all? When we're on the purchaser side, because they'll come to us after the closing and say, now we want to do the following five steps.

52:28How do we implement that? Hopefully they'll come to us because again, there may be issues involved. that they may not have thought about as to how to implement those steps. So it's more on the technical side of how to implement those steps rather than on the commercial side of which steps they want to do it. Which functions do they not need? I may not be in a position to tell them whether they need the entire finance department or can cut it back to one third of what it is now because they've got their own parent company finance department. I will tell them if they speak to me that don't think you can do that all, fulfill that function all from abroad because a lot of very local matters of value-added tax and tax withholding and other matters, various reporting requirements, you need to have people on the ground who can do it.

53:06So I can help them a little bit, but they're the ones who know best how they want their company to look post the closing. Cool. A lot of connections I can get out of good counsel. Yeah. Telltale signs you hired bad counsel. You should find a new one. They don't respond to your emails. What's my time limit? Give me responses in 24 hours. We try to respond as quickly as possible. Okay, so responsiveness is my number one score. Responsiveness. And do you get the feeling that they're working with you to implement what your goals are, or are they constantly pushing back? Whose team are you on? Exactly.

53:39By pushing back, I would want my counsel to tell me where they expect to get resistance, so that I know. But I wouldn't want them to be part of that resistance. If my client's goals are to accomplish X, Y, and Z, and if I can tell them, this is why it's going to be very hard to get that. And I can't guarantee you that, but I'm your advocate to do everything humanly possible, legally possible to get you. That's what I'm going to be. But I've got to be honest with him where it's going to be difficult. But at the same time, he's got to know that I'm on his team to get that done. Okay. The responsiveness, making sure they're on the same team.

54:09Yeah. And by the way, that's a real fear because you're sitting there negotiating. You've got an Israeli counsel on your side who you've never met in person, probably just had your first phone call with him a few days ago. And your Israeli counsel is negotiating opposite an Israeli counsel for the other side. Those two lawyers know each other very well. There's not that many lawyers in this small country. We have a lot of lawyers, but not that many lawyers who are doing all these M &A deals. So the guy that I'm negotiating opposite is someone I've probably worked opposite 10 times in the last three or four years.

54:36I know him very well. And so you want to make sure that your lawyer who's there representing you and barely knows you, that he's working for you and not just chumming up with the other side who we know is much better. That's very important for the lawyer to give the client that sense that, yes, I know their counsel. It's only going to help you because I can speak to him. I can call his cell phone if I need to, and I speak to him very directly and explain things. So don't think that my friendliness with the other side is something against you. I can definitely remember in my first year in Israel, negotiating on behalf of a foreign client.

55:07Again, we were negotiating in English. And one of the principals on the other side yells out to me in Hebrew in the middle of negotiation, look out for us, Cliff, also. Thinking because I'm an Israeli like he is, I'm going to look out for him. Of course, I smiled, whatever. But no, I'm looking out for my client. I live here like you live here, and I want to see the deal succeed. But even though we speak the same language and we live in the same country, my function here is to look out for my client. And that doesn't mean I want to harm you in any way or be adverse to you, but I want to get a deal done that works for both people.

55:36But I'm looking out for my client's interests. Yeah, that's absolutely right. Those are good points. How do you test for that? You know, it's a little thing to just make sure. It's that first conversation. Does the attorney win your confidence? Do you really get the sense that they know what they're doing, that they know where you're coming from, and they've had enough experience in the past of working with clients who are similarly situated to you in terms of someone sitting in the U.S. or UK or wherever who's also looked at Israeli companies before. Building that trust from the beginning, you're probably getting some helpful advice right off the bat and getting a good sense.

56:12Most general counsels are pretty... There's one thing they develop, one skill they develop very early on is how to assess whether this outside lawyer is the right person for me or not. At the referral. Yeah, but also the conversation, also the impression that the person makes when they first speak to them. Cool. What's the craziest thing you've seen in M &A? This goes back a while. It used to be that to do a merger in Israel, you need to get court approval. It was crazy. Oh, for every deal? For every acquisition of a public company, there was no simple provision in the local corporate law. You'd have to go to court.

56:42There was a long procedure, and that's how we would do it. And this goes back to a time when the local economy was much less sophisticated, including the judges. Not only do we have to get court approval, We have to get approval from a judge who really has no idea what this is all about. And we had a deal that goes back a while where I was representing a U.S. company that was buying, a U.S. public company was buying an Israeli, also public company. And it was a stock deal. We were buying their company with shares of our stock. It was a big deal was announced, a$400 million deal, which at the time was shockingly high to the local economy.

57:17That was based on the stock price on the date we announced it. And then we had to go to court and get the approval. and we find ourselves before a judge who really just doesn't get it. And the judge, he keeps calling in new sessions to understand more. And at the time, there was an accounting method of integrating companies called pooling of interests. It doesn't exist anymore. It's just purchase accounting. The judge started making suggestions for how we should do the deal. He said, okay, so you're going to take all the shares of the target, I mean, give them shares of your company. What if not all the shareholders want it?

57:47Maybe you'll give them a chance for in a year if some of the shareholders don't like it, they can get their shares back in the target. And which of course is ridiculous. But one of us said to the judge, no, that would ruin the pooling of interest accounting. And the judge says, how did we get to swimming pools? It meant nothing to him. And the frustration of trying to explain this. And eventually he gave the ruling, but said you have 45 days to appeal. So my client was the foreign company. We've got a ruling, but he says, any shareholder can appeal my ruling for the next 45 days. That was the law then.

58:19So we have to wait 45 days. I kept saying, I don't know if someone's going to appeal. It's highly unlikely. And if they do, they're even less likely to win. But you can't close the deal until that 45 days has passed because you're at risk. What was going on? I told you the deal was valued at$400 million when we announced it. As the whole core process was going on, due to other reasons, my client's stock price was dropping. And as the four months passed, the deal had shrunk from a value of$400 million to$200 million. just because our stock price had gone down for reasons beyond our control. Everyone was getting very uptight on both sides.

58:53And I was the one telling my client, you can't close until the appeal time. And I kept telling them that. The Targets Council kept calling me and saying, oh, it's not going to happen. It's unlikely. I said, you're right. It's unlikely. But what do you want me to tell them? It's not going to happen? I can't tell them. I can't predict the future. And the stock price is dropping and everyone's losing sleep. And finally, the 45 days passed. I said, you can close. They closed. And then the next day, my client, the U.S. public company, announced another deal that they were being purchased by a bigger U.S.

59:20company in a cash deal for, what was I believe,$2 billion that raised the value of the Israeli target way above the $400 million that had been worth its signing. So now suddenly, having signed the deal, the Israeli company having signed the deal to be purchased for shares worth$400 million, watched the value go down to$200 million still in shares. The day after they closed and got the shares, those shares were now suddenly turned into cash worth more than the original$400 million. And only then did I understand why everyone was pressing me so hard to get this deal closed. They couldn't announce their acquisition in the U.S.

59:54until we had closed this deal in Israel. So we were dealing with a difficult judge, very difficult law. It had a real happy ending for everyone, which I was very glad to see. So that was nice. I'm glad to say that the law was amended a few years later, and we can do these deals without having to go to court. It still takes longer than it should. In Delaware, you could sign a merger agreement and announce a tender offer and get a majority of the shares and close it a month later. Here, we have a built-in two-month process from signing to closing for a public company merger. So that can be frustrating, but at least I can tell them that usually it shouldn't take longer than that.

1:00:30It's a really interesting story. Yeah. Do you see the government still overseeing like anti-competitiveness when it comes to M &A? We have a competition's authority. We used to be called the Antitrust Authority. And certainly we have a law that's based on U.S. law in a lot of ways for protecting competition. On the other hand, in the technology sector, the vast majority of the target markets are outside of Israel. It's unusual for an M &A deal involving a technology company in pretty much any sector to have a major impact on the competition in Israel. We're less likely to focus on the local market in that sector, in all the various sectors, than we are on foreign markets to see where there's an overlap.

1:01:12If you come in other sectors, say in telecommunications, you're looking to buy an Israeli telecommunications provider, then you're going to have serious issues on the antitrust side. And you'll have to look at it closely if you've got other holdings in those fields. It varies immensely. So we do have a local regulator. They are no less aggressive where necessary than you see in the U.S. and other jurisdictions, but it's often not relevant. Fair enough. This has been great, Cliff. I appreciate you taking the time. Thank you. It's been great for me. Thank you. It's been great to meet you. I'm so glad you made the effort to come here to Israel.

1:01:41I hope you're seeing a lot of interesting companies. I appreciate helping you become a better M &A scientist. And those of you still listening, thank you. And until next time, here's to the deal.

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