The Challenges of Cross-Border Deals

Finding an attorney for cross-border deals

Let's say you're a CEO of a company in the US and you've gotten interested in a company in a foreign country. You're curious about them, potentially investing in them, or even acquiring them.

On the business side, you're knowledgeable about your business and know how to explore their business to understand if it aligns with yours or if they have something to offer you. There needs to be a commercial connection. However, on the legal side, you might not understand the business landscape in that foreign country.

One common mistake Americans make is assuming that the world functions like America. So, if certain actions are permissible in the US, they expect the same can be applied to their employees and investments in other parts of the world. This is often not the case. Therefore, it becomes necessary to have someone who can bridge this gap and help you comprehend the legal environment.

Typically, clients approach their US attorney, who they've worked with on domestic acquisitions. They might ask, "Now that I'm buying a company in Israel, do you know a lawyer there?" This usually proves to be the best way to find someone in that foreign country. 

The attorney may not personally know someone in Israel, but if they're part of a large law firm, they have access to a broad network of partners. They can then ask if anyone has recently worked on a deal in Israel or if they can recommend someone. It's an effective way to find someone who understands US deals but can also guide you in conducting transactions in a foreign country.

So, leveraging networks is essential. No reliance solely on Google reviews. I recall one instance where a large company reached out to me because they found me through websites that rate lawyers, such as Chambers and Legal 500. A general counsel of a large company looked at the recommended law firms and lawyers on Chambers Global and decided to give us a call.

However, that is an exception. Normally, individuals would ask their US or London attorneys for recommendations, then cross-check these recommendations with online reviews before making a call. If they're given multiple names, they will begin their online search to see what people are saying about each lawyer. They will then choose the one that appears best to them.

It's a mixture of leveraging your network first, then cross-referencing with directories. Most people cross-reference their sources today, much like when checking restaurants.

When evaluating these attorneys, industry experience is important. But it's more crucial to find individuals who've worked on the deals you need to execute. In the M&A context, you want someone experienced in cross-border M&A. An attorney might know Israeli law well, but if they've never worked with a foreign client, they might struggle to explain local concepts to someone used to operating in a different environment. That's critical.

Key attributes of the deal you're working on need to be identified. But it's not only about the deal itself. It's about every aspect of doing business. For example, in the US, you might let an employee go via a phone call or email. However, if you were to send an employee an email in Israel stating that they're being let go, you're likely inviting a lawsuit because the process differs here.

The presumption that the way you do business at home can be replicated abroad is often incorrect. If you adopt such an approach in France, you might end up being arrested. Therefore, it's vital to understand that just because certain aspects of business are taken for granted in the US, it doesn't mean it will be the same elsewhere.

Challenges of cross-border deals

There are certainly cultural differences in how business may be done differently in other places. The simplest challenge can be language. Where people believe they're speaking the same language and they aren't. Anyone who comes from abroad to Israel is going to do business in English. That's generally the language of international business.

Anyone in Israel working with someone abroad knows they won't be able to speak Hebrew, so they'll speak English to each other, but they may not be speaking the same language.

A simple example of this is, in Hebrew, the word for email is mail. They just took the word from English. So they say “I'm going to send you a mail” in Hebrew. They don't say email, they say mail. The American may think, is he going to the post office to send me a snail mail?

They both believe they're speaking English, but the Israeli's English isn't really English. Because he doesn't know that you say email in English. Someone sitting there can immediately clarify that he's sending an email and bridge that gap.

There can be lots of misunderstandings just because one person who believes he speaks English doesn't quite speak it a hundred percent correctly. That's why the simplest and easiest cultural gap can be language. 

Other cultural gaps are in terms of how people do business and how direct people are. Israelis are very direct. They don't hide how they feel. One thing I often point out to my Israeli friends here is that there's no word in Hebrew for subtle because the concept doesn't exist. 

You may see that in a negotiation, where two clients are negotiating a term sheet, and the Israeli will give his views very clearly and directly about these clauses. If the American acquirer and the Israeli target are negotiating, the American will come with a term sheet and present the terms he wants. The Israeli will go through and tell him directly what he disagrees with and why he thinks these terms are unfair.

Americans are often more polite and reserved, he'll sit back and listen, he'll smile and nod his head as each point is raised by his Israeli counterpart. He's just being polite and listening as he should. He's not conceding anything, but he's smiling and nodding, and the Israeli might think, wow, everything I said, he agreed with.

He gets the next draft of the term sheet and sees none of his points are there. He says, 'What happened? I thought we agreed on everything.' I say to the client if I'm representing the Israeli, 'he didn't agree with anything you said. He thought your points were ridiculous. He was polite and he smiled and nodded, but no, you haven't made any progress.'

You have to understand, are you really talking or are you just posturing? Different cultures posture in very different ways. The American has to understand that the Israeli who's giving his very direct points may also realize that he's not going to get everything he's demanding, but he'll insist on getting these points, thinking that's just how they negotiate in the Middle East.

You set the bar high, you demand more than you can get, knowing you're going to compromise. Then you have to counsel your American client in that situation. Yes, he's asking for a lot, and you may walk away thinking there is no deal, because he's so far from it. 

You have to say, 'No, you have a deal. He's just asking for a lot, knowing that he'll get a lot less and you'll have to come back to him. You have to bargain with him a bit before you get to the ideal outcome. He's not expecting you to accept everything because he knows his requests are a bit unrealistic.

Culture and language are key. The culture plays itself out in so many different ways throughout a negotiation, including how long a negotiation takes. Everyone begins every deal saying it's urgent. We have to close this within 48 hours or the sky will fall in. It seems that way for some reason.

As service providers, our goal is to meet the unreasonable expectations of our clients. That's fine, but there are often external factors that make it impossible to meet those deadlines. The question then becomes how do you deal with the disappointment of things taking longer than they should?

When you're the intermediary, the advisor, and the client says they want to get this done in 48 hours, you commit to making every effort to do so. But at the same time, you need to highlight the obstacles that may prevent you from meeting that demanding deadline. 

You don't want them to be so disappointed that they walk away from the deal when they find out that their 48-hour deadline is impossible because they need to get 30 different consents from 30 different people who have no reason to meet their deadlines.

Recently, I worked with a major Japanese company that was buying an Israeli company. The client was very helpful. He said that we have to understand what it means to work for a large Japanese company where decisions are made in a certain way. 

We will negotiate, but we will not sign anything on this first visit because we have no authority. We have to go back to our committee back in Japan and only after we bring them the results of this negotiation and where we think we can get, will they instruct us how far we can go to sign.

So we have to communicate that to the other side and make sure they understand that we're sitting here today in a meeting room for three days, but we're not going to leave with a signed term sheet. We're going to leave maybe with a draft term sheet that we think will work, but my clients have to check it with the higher-ups.

Each country has its own way of doing business. Each company has its own way of doing business. There's no right or wrong here. They've all succeeded in their own way, but you have to learn how to adapt to that."

Being mindful of the time difference

There are time zone differences between the US and the rest of the world. Most of us know that, but because the US is so big, powerful, and dominant, they sometimes forget that the whole world is not America.

For instance, if they're in California and they want to set up a call with people in Israel, they have to be sensitive to that. California attorneys, in fact, are some of the best about getting up early to do calls to accommodate other time zones. 

But recently, I got an email from an attorney in Los Angeles. He sent it at 1:30 in the afternoon, saying we needed to answer by the close of business that day. There's a 10-hour time difference between Los Angeles and Tel Aviv. I received that email at 11:30 at night, my time. When I saw an email at that time demanding an answer by the close of business, I was thinking, the close of my business ended a long time ago today.

Key differences in local laws

Labor law is one area that really varies throughout the world in terms of employee protection. When you're buying a company, you may want to make significant changes to that company. You may be interested only in one division. You may want to sell off another division or close down another division. All these goals within an M&A deal may be very different to implement in different countries.

For example, the EU has many laws that apply throughout the union, but each country of the EU has its own labor laws. Lawyers there are very sensitive to the fact that when they're dealing with people in a different country, the first question will be about labor regulations. 

On the American side, it's different. It's much more of a free market, which is wonderful for those who grew up there. You generally have freedom of contract to do what you want with your employees. There are risks of getting sued, but they tend to be on the margin.

When you're coming into a foreign country like Israel and looking at a target company, you have to understand the limits of the changes you can make. Israel is easier than many European countries in particular. We have many protections for employees, but at the end of the day, the employer usually is able to make decisions as long as they do them in the right way.

If you want to let someone go, there's a procedure. You have to tell them that you're thinking of letting them go and why. You have to invite them to a meeting or a hearing, where you explain to them in person why you want to let them go and give them a chance to respond. Only after you've given them that chance can you make the decision.

There are other employee benefits an Israeli employee is entitled to get, like severance pay. Every employee who's let go gets one month's salary for every year that they worked at the company. That's an obligation. So when you're looking at the financial statements, you have to look for that obligation to make sure it's been fully funded.

On the other hand, in the US, you have a lot of exposure from pension funds because a company will contribute to a pension fund. If something goes wrong with that fund, the employer may have liability for that. In Israel, you have much less exposure. Each employee has their own personal fund. The employer contributes to it. As long as the employer makes their contributions every month as required by law, the fund is in the hand of the employee and the employer has no exposure for it.

So, there is a very different legal environment on the labor front that you have to navigate. You need someone to walk you through it. The key is to ask the questions. Ideally, your advisor should be aware that there may be aspects you don't understand and will raise them with you at the earliest opportunity to explain what the limitations are in the local jurisdiction.

Nature of deals in Israel

Predominantly, we see stock deals due to their simplicity and straightforwardness. If we're talking about a public company, it's almost always a stock deal. However, the vast majority of Israeli M&A deals involve private companies. This is reflective of the Israeli market, where startups that may develop a product, idea, or technology are prevalent.

These startups excel at reaching a certain point of development but may not have as much prowess in marketing and scaling. As such, they are frequently acquired by larger foreign companies looking to integrate their product or technology.

Even though most deals are stock-based, in cases where it's an asset deal, the buyer will need to establish an Israeli company to acquire those assets. This is because they'll likely want to continue operations in Israel. 

While there are occasional tax benefits to asset deals, similar to the US, these instances typically indicate a buyer with considerable bargaining power that can negotiate terms with the sellers.

Many of these deals seem focused on acquiring a capability that can be expanded through the distribution of the acquirer. This is not specific to any one sector; it's mainly prevalent in high tech but extends to various technology industries, such as telecom, software, or cybersecurity.

For a long time, the majority of Israeli M&A deals were strategic, with larger companies acquiring smaller ones for integration. However, in recent years, we've observed an uptick in private equity M&A. 

Large private equity funds acquire Israeli companies, sometimes integrating them into existing portfolio companies, but often running them independently. They do so because they believe these companies have the potential to grow and be sold at a later date.

Private equity funds typically buy with the intention of reselling, in contrast to strategic purchasers who usually aim for integration. So, we've been seeing a rise in private equity deals lately, although strategic acquisitions also remain significant. This trend is observed across all fields.

Mitigating Risks

First of all, as a principal, approach the process with an open mind. Don't assume everything aligns with your perspective. Clearly, you're interested in the company because of its commercial value, and you have to ensure that value is protected, including intellectual property.

However, you also need to be flexible about legal and cultural restrictions and adapt to how negotiations might differ. You have to be willing to adapt to local customs because there will be things you can't change.

We once had a client from the Far East who had just acquired an Israeli company. When we explained about the numerous local holidays in Israel, particularly in the fall, he was initially shocked. These holidays, which have biblical origins and haven't changed for thousands of years, mean that he'd have to close his company on these dates. 

However, he took it in stride and even joked about moving to Israel to enjoy those holidays. He understood that he needed to work within local constraints. His company has been successful, even with these holidays.

In terms of the negotiation process, one must be adaptable. While negotiations are often conducted in English, the international business language, I recall one negotiation with a local company in a basic industry sector. The managers of that company were unfamiliar with many business concepts, particularly M&A concepts that a US professional in the field would recognize easily.

This was a local Israeli company that a US private equity fund had taken an interest in. They didn't speak the same language, not just Hebrew versus English, but in terms of concepts. When the Americans mentioned the right of first refusal, the Israelis were unfamiliar with the term, causing negotiation difficulties due to this conceptual misunderstanding.

During one slow-moving session, I turned to their Israeli counterpart and started speaking in Hebrew. We had a 20-minute discussion, and then we switched back to English. I apologized to my clients afterwards, acknowledging that it could be considered rude to negotiate in a language they didn't understand. However, I felt it was necessary to overcome the barriers we were facing.

They smiled and said it was no problem. They noticed that as soon as I switched to Hebrew, the volume went up—typical for passionate Israelis—and things moved quicker. Surmounting the language gap enabled us to progress more rapidly. 

They had the good sense to let me have that moment, even though they were sitting there for 20 minutes not understanding a word. They realized it was the best thing for the deal at that time.

Differences in Negotiations

There are significant differences in how people conduct themselves. Israelis, for instance, are direct and demanding, expecting the other side to react similarly. They might project an expectation for a quick deal, but often negotiate as if there's an abundance of time. 

This disparity in expectations can extend the process and occasionally lead to misunderstandings, with parties either genuinely taking offense or feigning offense as a negotiation tactic, a practice I personally don't endorse.

An interesting shift in negotiation processes has been the increased utilization of virtual discussions due to the COVID-19 pandemic. Over the past three years, we've discovered that we can accomplish much more through platforms like Zoom than we initially anticipated, significantly improving efficiency. Prior to this, deal-making often involved time-consuming travel and face-to-face meetings.

People are now realizing that working virtually is nearly as effective, if not entirely, as in-person interactions, and this saves a great deal of time and eliminates the burden of travel. This change is especially significant for international deals. It's a simple task to take a taxi for a meeting in Chicago if you're all in the same city, but for cross-border deals, the ability to conduct business virtually is critical.

This significant shift in business operations that we've observed over the past few years is here to stay. Face-to-face meetings still occur, but there's a deeper consideration now. 

Do these increased interactions via Zoom calls help improve comfort levels and understanding of cultural differences? Absolutely. People get to know each other more quickly because they can interact more frequently.

While it can be overwhelming when deals shift from weekly catch-up calls to thrice-weekly meetings, these frequent interactions have their benefits. People become more familiar with each other, leading to a sense of camaraderie even among individuals who've never met face-to-face. 

Despite their diverse cultures and backgrounds, they develop a shared understanding. They've spent enough time together to create a viable modus operandi, even without ever being in the same room.

Difference in presenting LOI

It's certainly accurate that Israeli companies are more likely to be the target in an acquisition rather than the purchaser. Sometimes, we hear about deals framed as 'mergers' or 'equal partnerships', but in an M&A scenario, there's no such thing as equality. It's just a comforting narrative for the target's employees to make them feel they are not being devoured by another entity.

The letter of intent is a crucial part of the process and typically originates from the purchaser. We often see it dictated by the foreign purchaser, be it from the US, UK, Europe, or elsewhere, and they're probably not much different from what you see in domestic deals in the US.

The one exception is when we encounter auction deals where the Israeli company is the target. In these scenarios, the target company is steering the process because they've decided it's time to sell. They've engaged a banker to run an auction, setting out the terms for potential buyers. The buyers then propose their valuations based on these set terms. While buyers may want to change the terms, the sellers might reject any drastic alterations and could even refuse a bid altogether.

Even in auction scenarios, Israeli companies often engage international bankers to ensure they adhere to the norms foreign purchasers expect. This approach indicates a relatively sophisticated market.

Key differences in price negotiations

In my previous role as an attorney in the US, working primarily on domestic deals involving very large companies, legal counsel was often not involved in the pricing negotiation. The core commercial terms, including price, would be agreed upon before the lawyers were contacted.

However, in Israel, particularly when dealing with targets, this is different. Many companies might be involved in an M&A deal for the first time, perhaps led by a founder who took the startup to a certain level and is now selling it. In such cases, these individuals want their advisors with them from the start, even for the initial price negotiation. This makes the legal aspect more interesting, as we don't just fight over indemnities and representations, but also observe the price negotiation.

At the end of the day, price is a bottom-line figure and either you can reach agreement on it or you can't. Sometimes, the gap can be bridged with mechanisms like earnouts, which we see quite frequently. For example, the target might believe they're worth a hundred million, but the buyer sees only eighty million based on their projections. 

If the target's projections are more optimistic, the buyer might propose an earnout. This is where, if the target achieves the higher projections, they get the full hundred million. If not, they get eighty million. From a commercial perspective, this works to bridge the gap, but it's challenging to make it work legally once the target company is sold.

In a cross-border deal, one of the key negotiation points is the governing law. If a New York company buys an Israeli company, will the deal be governed by New York law or Israeli law? If a dispute arises, will it go to New York courts or Israeli courts? Sometimes, we may agree to apply New York law but settle disputes in Israeli courts, or vice versa.

These questions also lead to considerations about arbitration. For an Israeli company, their greatest fear is having to go to court in the United States, where they are convinced that the expenses would be so great that it's an immediate loss for them. Therefore, they often insist on resolving any disputes in Israeli courts, where they are confident in their understanding of the costs.

It all depends on who’s got the greater bargaining power, and these issues are often addressed at the very beginning. They are in the term sheet.  

The American stereotype

The world admires America, America's the greatest success story ever. No one looks down at America. In every aspect, from consumer society to telecommunications media, everyone is influenced by what goes on in America, and everyone wants to emulate America. As an American, you're generally well respected here. 

There's a genuine appreciation for foreigners, particularly Americans. However, it's true that some Israelis may believe they can outsmart everyone, including Americans. If you encounter such individuals, it's advisable to steer clear of them. They're likely not the best choice for business collaborations.

As an American doing business in Israel, you come with significant credibility. You're generally respected.

In my conversations with American clients, I often discuss the possibility of ending up in court in Israel. If there is a lawsuit, or if they agreed to Israeli jurisdiction, the concept of appearing in a foreign court can be daunting. 

However, there's no real home field advantage in Israeli courts. There might be a perception that an Israeli judge would favor the local party in a dispute with a foreign entity, but this isn't necessarily the case. We see judges who are happy that foreigners are doing business here and they will give them a fair hearing in local courts.

In terms of the timeframe of court proceedings, we have some cases that do drag on for a long time, including some notorious criminal cases. The process here generally takes longer than in the US, especially when compared to some US jurisdictions that have efficient courts. 

If I were to tell someone they wouldn't get a verdict for two years, that could cause apprehension. However, usually, the duration of litigation drives the parties towards a settlement, much like in the majority of US cases.

One recent change in our courts is the requirement for parties to consider engaging in mediation at an early stage of the dispute. If you have a competent mediator, they can assist parties to reach a resolution without having to go through the whole litigation process. I've seen some excellent examples where mediators found common ground between parties that initially seemed far apart, thus resolving disputes more quickly.

People also use arbitration, but that can't be forced upon someone. We often include arbitration clauses in agreements, but even if there wasn't one, parties can agree to arbitrate at a later date. This can be much quicker and more efficient, but it requires mutual agreement.

Indemnification issues

There are issues of indemnification and how long you'll have exposure. We're very influenced by the US in particular regarding the length of exposure. But one challenge is that Israel has a different statute of limitations. Most contract claims and other exposure have a seven-year statute of limitations.

This can worry a purchaser. They may normally be willing to accept indemnification lasting for 18 months or two years. Three years is a long time. However, when you tell them they'll have three years of indemnification coverage, but they may face a lawsuit for something five years later, they realize they won't be covered.

For example, there might be a claim for breach of contract dating back to before the acquisition. You had three years of indemnification, but those three years have passed, and now you get sued for something that occurred five years ago, which is within the statute of limitations. You're not covered and are entirely exposed.

I find a seven-year statute of limitations extreme, but no one's asked me to change the law. However, it's rare for a claim to appear five years later. Even though it legally can, it's uncommon because there's no incentive to wait that long. If someone has a claim, they'll want to file it as soon as possible. Typically, we see these claims much earlier than waiting five years.

Another important point to mention in this context, which the US has been doing for a long time, is reps and warranties insurance in M&A deals. This removes the indemnification discussion by having a third-party insurer take responsibility for those reps and warranties.

Israel has caught up with the US and the London markets in terms of making this insurance available. It's significantly eased the negotiation process, as both sides know what their exposure is and have offloaded it to a third party.

I admire these insurance companies for their innovation. They've created a product to meet every need. In a sense, they're compensating for the failures of the attorneys who negotiate these indemnities for a long time, creating fear in their clients on both sides.

In reality, most of the time, nothing happens. This is what the insurance companies realize. They understand there's not much exposure. They can take on that exposure for the few cases where claims are filed and will profit from the premiums they collect on the vast majority of cases where no claims are filed.

That's the nature of insurance. It plays on the uncertainty and fear of each side, which are risk-averse. The insurance company knows how to better modulate that risk.

Confidentiality

In any M&A deal, it's often crucial to conduct the negotiation process in a sterile, confidential environment without leaks. If you're a target company and employees find out you're negotiating to be sold, it can create a lot of uncertainty. 

People may worry about their job security, start sending out resumes, or even leave due to these rumors. On the commercial side, if your customers hear rumors you're going to be acquired by a competitor, they might discontinue their association with you, even if the deal is only a rumor and doesn't materialize.

Keeping things quiet is vital. However, in Israel, we're a society often riddled with leaks, not just in business, but in politics and the judicial environment as well. We have an unfortunately high share of leaks. 

This can be challenging when doing business in an M&A deal, especially for clients from abroad who are used to confidentiality. They might find out that the letter of intent marked confidential has been reported in the local press.

I vividly remember when a major multinational client from the US contacted me, emphasizing the confidentiality of their inquiry into an Israeli company. I had to respond with a news article from the local press outlining all the details of their intended deal. They were shocked. That was 25 years ago, but things haven't changed much. If anything, it's gotten worse due to the ease of leaking information in various ways.

So, why do leaks happen? Sometimes it's for negotiation advantage, sometimes it's out of enjoyment, and other times it's merely someone feeling powerful by sharing inside information with a friend who's a reporter. There's no real logic to it, which makes it difficult for foreigners to adapt to the local environment.

I remember working with a multinational corporation negotiating to buy a company, a subsidiary of an Israeli public company. The Israeli company was leaking every stage of the negotiation, presumably because it raised their stock price with each leak about selling the subsidiary. It drove my client to frustration, to the point where we discovered live reporting of our negotiation progress during a break in a meeting in London.

We confronted the other side and sent a message to their banker about the need to stop the leaks. In return, they accused us of leaking information, knowing we couldn't prove the leaks were from their end. That was an extreme case, but it illustrates the challenges leaks can create in the negotiation process

Differences in diligence

Legal differences are crucial when engaging in M&A deals in Israel, particularly if you're unfamiliar with potential areas of exposure in the country.

Israeli companies law is very focused on related party transactions. For example, when Israeli companies first started going public, they often had a controlling shareholder. In the past, that controlling shareholder might use their position to benefit themselves at the expense of public shareholders. As a result, we now have strict legal protections for minority shareholders in our law. While this is important, it can also make the negotiation process challenging.

When doing an M&A deal, particularly from abroad, you may not suspect issues such as making a separate deal with a controlling shareholder. These situations raise significant issues under Israeli law. If you don't consult your attorney early in the negotiation of the term sheet, you may overlook these issues.

I've mentioned labor law several times because it's drastically different and crucial in our context. However, there are other areas to consider, such as land law. In the US, the focus might be on environmental exposures if the company owns real property. In Israel, the vast majority of the land is owned by the government, and people who "own" it actually have long-term leases. When a foreigner buys a company, they may need to get consent from the government under the terms of those long-term leases, something they may not initially consider.

Understanding these peculiarities is paramount because not every target company in Israel is a technology company. Often, the real property assets are a significant part of the deal. As such, the buyer needs to understand what they are getting in terms of title and rights.

Overall, there are many other issues and different ways of doing business that might not be readily apparent to foreigners coming to the country. You need to get your local council involved before the LOI. Before you set the terms of the deal get them in the picture because there will be questions you don't know to ask because you don't know how things are different in that foreign country.

The importance of an attorney’s experience

The longer you practice law, the more mistakes you've made along the way. You don't learn from anything better than your mistakes because, ideally, you don't make them a second time. Hopefully, you're learning from others' mistakes too. The more situations you've encountered and the more stories you've seen, the more you're prepared for the unexpected.

As you progress, the business advice value is what you end up offering. At the end of the day, I often say, even though I'm a lawyer and have been for a long time, in some ways, I'm a glorified translator. This refers to cultural differences, business differences, and legal differences. Your job is to explain these to your client in terms they understand.

Take litigation, for example. If things have gone the wrong way and you're in litigation, at some point, the U.S. client will always ask if they can get summary judgment. Israel, however, doesn't have summary judgment. So, your lawyer needs to know what summary judgment is to explain why it's not possible and how things work differently in Israel.

You must explain everything to your client in a language they understand and feel comfortable with. They must have the confidence that they are dealing with someone who understands where they're coming from. At the end of the day, earning your client's confidence is crucial.

Negotiating legal fees

I'm going to make a case for all my colleagues here in Israel that our hourly rates are much lower than in foreign jurisdictions. So use your Israeli lawyer to get the best deal. At the end of the day, every lawyer knows that you want a happy client. Part of having a happy client is ensuring the fees they pay feel fair. No one likes to pay fees, but they should feel they're paying for the service they received. A smart client understands that they need to pay for good service. If they focus entirely on getting the best price, they might not receive the service they need.

Whenever I make a proposal to a client on fees, which they are completely entitled to ask about, I always tell them they will find someone else willing to do this for cheaper than I am. I'm not claiming to offer the lowest price in town, neither are the same colleagues I work with on these deals. So, if price is all you care about, then perhaps you should consider that option.

It's perfectly reasonable to discuss flexibility, estimates, and caps. I appreciate the idea of estimates, as clients often need some sense of what they're in for, particularly if they're accustomed to higher rates abroad. They have legitimate concerns about what their bill is going to be, so they must ask questions.

When discussing caps, I might jest, 'So, if I hit the cap, do you want me to work for free from that point?' However, caps are indeed legitimate, as long as clear assumptions are built in.

These are essential conversations. There's no reason for the client to be in the dark about what they can expect the legal fees to be. The more critical aspect isn't the hourly rate; it's the final cost and what you're receiving for your money.

We strive to provide an estimate, and if we see it veering in a different direction, we'll inform you at the earliest opportunity. This requires keeping a close eye on the situation, which can be challenging during the busyness of a deal, but it's crucial not to lose sight of the bigger picture

Obtain an estimate of hours and request regular updates. One significant difference between a strategic purchaser and a private equity purchaser is that a strategic purchase usually results in a bill every month, providing an ongoing idea of where the fees are accumulating. Conversely, private equity charges might only come at the end of the deal, as they're only raising their money from investors for the closing.

However, clients should ask for updates every week or every two weeks, if that's what they want. As for the prospect of fixed pricing in M&A, it's complicated due to the unpredictable nature and varying timelines of these deals. A deal we anticipate finalizing in 72 hours could take four months.

Fixed price contracts are challenging in M&A, but they could be more feasible in other types of transactions, such as private investments or venture capital-type investments. These deals follow set patterns, and once the clients have agreed on the basic term sheet, the timeline should be relatively predictable, making it easier to price on a fixed price basis.

Integrating cross-border deals

We help clients understand how to implement the steps they've decided on. There could be issues they haven't thought about in terms of executing these steps, so our guidance is primarily technical. The decisions on which functions they need or don't need largely fall under their purview.

For instance, I may not be in a position to advise them on whether they need the entire finance department or if they could reduce it to one-third of its size because they have their own parent company's finance department. However, if they consult me, I would caution them against trying to handle all those functions from abroad due to local matters such as value-added tax, tax withholding, and various reporting requirements. It's essential to have people on the ground who can handle these tasks.

Ultimately, they are the ones who know best how they want their company to appear post-closing.

Signs of a bad counsel

Responsiveness is my number one criteria. Do you get the feeling they're working with you to achieve your goals, or do they constantly push back? While I would expect my counsel to highlight potential resistance points, I wouldn't want them to be part of that resistance. 

If my client's goals are to accomplish X, Y, and Z, I can inform them why it might be challenging to achieve that, but I'm their advocate to do everything humanly and legally possible to get there. It's important they know I'm on their team.

A real concern is when you're negotiating with an Israeli counsel on your side, who you've probably never met in person, and you only had your first phone call with them a few days ago. Your Israeli counsel's negotiating with an Israeli counsel for the other side who they know well. 

Despite this familiarity, you want to ensure your lawyer is working for you and not just chumming up with the other side. The lawyer needs to reassure the client that knowing the other counsel is only going to help because they can communicate effectively and directly.

Remember, in my first year in Israel, I was negotiating on behalf of a foreign client, and one of the principals on the other side yelled out in Hebrew in the middle of negotiations, assuming because I'm Israeli, I would look out for him. Of course, I'm looking out for my client. I live here, and I want to see the deal succeed, but my function is to look out for my client's interests.

Building trust from the beginning is crucial. The attorney should win your confidence. You should get the sense they know what they're doing, they understand where you're coming from, and they have experience working with clients in similar situations. Most general counsels develop an early skill in assessing whether an outside lawyer is the right fit or not. The initial conversation and the impression that the lawyer makes when they first speak to you are key.

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