Streamline your pipeline management in NDAs

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the most important thing to me in negotiating with nga is to remember that this is not a random piece of legalese that lawyers are going to talk on the side and it's just a check mark that by policy both companies need to go through and carry on um this is a fundamental um piece of the m a process that fulfills two critical things one it establishes trust between between the parties it lays the framework for how the negotiation will carry on throughout the diligence and then if this gets to the closing documents how the parties will work with each other how the commercial terms will be discussed uh how the legal teams will work with each other who has the balance of power uh who um who is flexible and who is not who has the decision authority do you need to go three levels up for every minor decision to be made or is the person on the phone actually uh allowed to make uh legal and business calls on the terms that are being negotiated so it really sets the tone for the process going forward [Music] welcome to mma science live where leading m a practitioners share lessons learned from their experience if you're interested in keeping up with the latest from remedy science visit mascience.com and subscribe to our free newsletter every monday we share highlights from our interviews and publications so you can continuously improve your m a skills again that's m a science.com i'm your host keisan patel ceo and founder of m a science joining me today is mark hofkin cfo at pantheon platform he's a growth executive focused on scaling technology businesses building cohesive teams coaching leaders and learning today we're going to talk about how to negotiate and structure ndas how are you doing today mark doing well thanks very much for having me hey let's uh kick things off with a little bit about your background yeah of course um i started my career in severe traditional safe finance finance way i spent about a decade in various forms of buy side financial services and a prerequisite firm in a hedge fund did a little bit of work in the in europe most of it in the us and then after getting my mba and a few more years on wall street moved into corp death teams at in technology companies moved into the finance finance roles in in corporate technology world which was fun started at ebay in in their corp death team and very active uh corporate development organization at the time um then moved to another marketplace to lead the fpa team that that was called upwork called upwork uh it's a marketplace for freelancers not this model is very similar to ebay's that company is now public doing extremely well especially in this climate but now i'm the cfo of pantheon we're a b2b subscription software as a service uh platform for web ops um and uh broadly speaking at the pre-ipo stage so i've had exposure to mna in all three of those tech companies um and have some stories to share sounds like you're very well-rounded for all things finance and uh m a here um and with that you've uh probably signed an nda or two probably quite a few yes and that's our topic let's let's jump right into it how do you negotiate an nda yeah yeah a fair question so first before we go in just a reminder uh i'm not a lawyer uh not a uh not a day spent in a law school so everything i learned on the legal side was getting advice from uh corporate attorneys in in this companies or outside legal counsel and i'm not here to give any sort of legal advice this is purely a practitioner state the most important thing to me in negotiating the nga is to remember that this is not a random piece of legalese that lawyers are going to talk on the side and it's just a check mark that by policy both companies need to go through and carry on um this is a fundamental piece of the m a process that fulfills two critical things one it establishes trust between the parties it uh uh it's a ground uh it establishes trust between between the parties it plays the framework for how the negotiation will carry on throughout the diligence and then if this gets to the closing documents how the parties will work with each other how the commercial terms will be discussed uh how the legal teams will work with each other who has the balance of power uh who who is flexible and who is not who has the decision authority do you need to go three levels up for every minor decision to be made or is the person on the phone actually allowed to make legal and business calls on the terms that are being negotiated so it really sets the tone uh for um the process going forward um so all those things are covered in the nda like all those things are laid out well what's laid out is the initial approach in the form that one of the parties uses the first the first decision both parties have to make is when to engage in this nga process and that's definitely more of an art than science um you know my personal approach to this is you want to go into the legal aspect of the transaction of this relationship building phase as late as possible but no later the art is to take the conversation in very general forms to a place where both parties are comfortable and uh convinced that there is a there there and that it's worth it in getting into a very strict legal and operational we'll talk about it later i'm sure legal and operational constraints and take on this like multi-year liabilities uh and it you know it's uh both parties need to take it seriously to um seriously enough to get into this together this process so to me my rule of thumb is uh this it's a sales process both both both parties sell one sells that this is the best uh uh lending pad for for the target and the target of the cells itself um and it needs to be it needs to be taken far away now to me everything that can be like generally can be discovered through a number of glg expert interviews should be discussed before the nda that's kind of my rule of thumb anything that's in the sales pitch deck um as into the customer sales to the customer piece that should be discussed anything that um both companies can uh can find out from talking to their respective clients prospects former executives um analysts out in the wild obviously the website all of this can be talked about before needing to get lawyers involved and get more specific on some of the terms and some of them are easy to negotiate some sounds are hard to negotiate but there's a lot to be said about the relationship building base uh where everything that's in public domain is is discussed fairly openly with and uh the relationship and that the trust is is being built so that's how that's how i think about when to actually get the lawyers involved so let's um let's hash out the the timing and and when to use an nda because you're putting some perspectives there that there are some things that you don't necessarily need an nda to have conversations around is there a certain timing in the deal process that makes the most sense to execute an nda yeah before i the red line to me is once you start getting into specifics of how the product works that is being acquired when you start getting into explaining or attempting to explain what is it exactly uh being done on the back end or you're starting to get into details of your financial statements um you're starting to get into the details of actual backgrounds of engineers or of key personnel once you start getting into this territory you want to put on paper the actual terms and liabilities and operational procedures that both parties will carry on to protect the information that they receive but before that it's all about building interest mutually in this partnership that will last for many many years so a bank deal bankers are going to fit this in their process and they'll probably come after a teaser sheet right here's a teaser sheet um you know before we disclose more information we want you to execute nda and if you're doing a pro is that sound right so it's the user and then in my experience there's one more conversation after the teaser where you ask where the acquirer gets to ask fairly basic questions like clarification questions on the information in the teaser so when this is out of the way and if both parties and again both parties are interviewing each other if both parties are interested after that click to either clarification stage this is where you may want to start bringing in uh bringing the big legal guns and the fees that come with it got it and then that it's probably going to be required for them to give you a formal sim of the business correct so that makes sense you can have a teaser sheet maybe have an initial conversation get some clarification but then likely going to need to execute this nda before sim as part of a bank process now if you're doing a proprietary deal that's a little bit a little more open because it varies on the seller you're dealing with whether they're experienced sophisticated versus unsophisticated and then how does that work is there a point where you just try to get as much information as you can on the buy side until the seller really says you know prompts you for an nda or is that something where hey since we are going this route let's get an nda out there well that's the art if the disclosure party feels that you're on a fishing expedition the relationship is just not going to work from the get-go everything in the future will be tainted by how you have approached uh the party in the first place so it's uh it's really you need to really get a sense of how the other party feels answering the questions you're posing and it's good practice to suggest that well this is a point at which you may want to actually um send us something or let us send you the nda so we can ask you more questions we're really interested in this so it's again think about it as uh what you would do to build the uh modicum of trust between the parties and if the uh buyer proposes that you know they you score points you may come across especially if it's a competitive bid you will make the seller feel more comfortable working with you than working with somebody else if in this process you're kind of acting like obviously you're incentivized to close the deal and not lose the lose the bid to a competitor but everything you can do to instill a sense of you're already almost on the same team and we want to protect you you want to protect ourselves we are potentially more experienced than you are as an acquirer that has done many of those all of those things build relationship and have have a way to impact what [Music] eventually is done in a positive way so i heard negotiating the nda sets the tone for negotiations of the deal the time frame it takes to negotiate the nda how much details you get into and start negotiating back and forth the process how long does it take to get a response it's like every minor point uh taking two gc of the of one of the companies and you know you need five approvals to agree to anything um how not before is that a good word but uh how cadantic either of the parties is to you know every letter of the uh of the agreement is a feeling that it's a part of the process and um some of the questions are pre-determined does the one both companies have their stuff together so to say they know how to achieve like how to um structure a compromise if one party uh and one party's preference is to be on one end of the spectrum for a particular issue and the other party practices to be on the other part of the particular issue you know how who is being more accommodating who is being more creative who listens to you know to the other party yeah we understand your concerns here they're specific to you but let us propose something that could work for you in this particular case the this this tendency to find mutually agreeable compromises is definitely part of the uh exercise for building the trust and it will carry forward to the actual closing deal negotiations so you'll get a sense of hey these people are easy to work with or these people are really hard to work with and maybe we don't even want to go down this path exactly easy hard and how much time it takes those are two two very critical dimensions if your company can get through this process in days but your competitor takes weeks to negotiate this document you've already set the stage for how the final process will go through when you're doing a proprietary deal who's coming up and proposing that initial nda typically the buyer the buyer okay but if the bank process it's often the seller it's typically the buyer uh especially if the buyer is a much bigger company than the target it's not always the case because you know in some cases you have a division being spun off then the the parent the parent target is the bigger company with their own processes obligations and all of that um but in most of the cases where i have seen i've been on the buying side and we've proposed our own makes sense let's go back into the how do you negotiate nda what are the the top like three or five things that need to be negotiated yes the most controversial and aspect of uh of the documents in my experience is a so-called residual memory clause um so that's its own separate bucket uh the stuff hits the fan typically this is typically the last um the last item to be resolved um but before we get there we can knock off a few more sort of mundane things of the checklist mutual or one way is is frequently discussed up front um some people prefer one-way ndas uh in my experience and my uh very firm belief that all of those ndas should go two ways the acquirer in the process of diligence will disclose a lot of proprietary information and the acquirer needs to be protected as well so i think it's erroneous to think that the only disclosing party is the target um and the reason is that as you go forward with the diligence and planning of what you will do with the target the acquirer will share a lot of information about its strategy about its capabilities about its yeah what it's going to do what it's planning to do with the targets technology how it's going to monetize the targets technology and that is you know the the longer the deeper you go in the due diligence process more of that stuff is disclosed and if the target is going through a process with a number of players in the same ecosystem you want to make sure that this information does not get leaked to put together bitter so that's one and by the way it doesn't have to be simultaneous the target would be in the process with you this year and then in the process with somebody else two years from now or a year and a half from now and you don't want your strategy and your strategic thinking let alone any of your sort of numbers um leaked to another party a year from now when you will be discussing price you will be disclosing you will be talking about most likely how you are thinking about realizing synergies how you're thinking about realizing cross-sell upsell opportunities all of that stuff is highly highly proprietary to the acquirer and target will have exposure to it so in my experience in my firm belief for the negotiations to be transparent and for due diligence to be productive the nta has to go two ways the other idea we can kick off is the duration uh that's certainly the object it's super easy to find compromise because it's an ultimate spectrum to me three years what i've seen at least in my corner of industry three years is kind of standard uh five years is sometimes on the page i think it's kind of exceptional um and i i don't think it's reasonable or or pragmatic for that for that matter things change so quickly in technology but keeping something safe for five years doesn't make any sense what should never be done is indefinite um that's uh that's just that form and uh nobody should be assuming indefinite liability and indefinite iterational obligation uh for any of that of the data that we see [Music] and another one that i see kind of quirky and gets almost to the legal fine print is what actually is confidential information is it what's verbally disclosed is it what's in writing is it what's in writing but explicitly marked confidential the interesting really interesting one here is is it just the primary information or the derivative work product as well so for example a target sends over a set of financial numbers marks that confidential everybody agrees that's confidential but then an analyst at the acquirer does some analysis puts together some ratios some trend lines and presents this to the to the executive team in a summarized form is that now confidential what are you going to do with that particular analysis when the deal falls apart or if the deal falls apart will you have to destroy it will you have to return it um how will you have a faith keeper like all of those things actually start to matter um kind of edge cases but a lot of those things and ndas have a low likelihood of being tested in court but a very high uh or effectively unlimited in majority of the cases exposure if um [Music] damage is proven in the corner law so you just need to be careful uh on on how to treat all of those things um and then another one that's uh negotiated probably right before the residual memory clause is the non-solicits non-hires and all those things that you can and cannot do with the people you encounter in the process um right you just don't want them going back to to recruit and hire people what um what about jurisdiction in terms of enforcing the nda that's you now you're getting more into legal territory and your legal counsel should should help you with that um most what i've seen is the buyer wants it in the territory where they're based because presumably that would be the most friendliest juries uh in if it ever comes to litigation um but i've also seen firms be fairly flexible okay and then if there's a breach in the nda in terms of pass for repercussion or what what is is that outlined in the nda it it is um and all i can tell you is the punishments are very steep if if it's not unlimited in most cases uh because once you beat you deal with data breaches and uh you know if it's one thing if the data of one of the companies is breached but you could also breach into the data of the customers of one of those companies so then you get into really severe repercussions um most of the most of the nga section have unlimited channels is it like a lease agreement where there's uh like waving your right to jury and stuff like that then i'm not an expert okay that's a legal question we can always add yes it's not you that is mostly a legal question yes when you agree to arbitrators and um so go going back to residual memory this is an interesting one because you go through you're doing diligence on the deal and you come across trade secrets all kinds of proprietary pii all kinds of information and you can memorize it you can visually it's in your brain it's there uh maybe not on a hard format how do you cover that in nda yeah so intellectually this is the most interesting part of uh of the agreement in general residual memory is the clause where this gets discussed is the residual memory the general concept is that once you have seen something as a human being it's very hard for you to unsee it typically this refers to general frameworks and general skill sets in normal life think about it as learning to ride a bicycle if uh you know the company manufactures bicycles and you've never ridden a bicycle but you want to try it out you can learn the skill set you learn to ride the bicycle it's an amazing bicycle you cannot unlearn the skill of riding bicycle the same could be said about intellectual endeavors if you're trying to solve a problem your company is an acquirer your company has been trying to solve this one particular issue and then you learn of a completely new approach it's just blows your mind it's not what you have been doing it's not what your advisors have been telling you it's just complete out of the box thinking that this other company that the target came up with and all of a sudden it and it's so simple because everything that's genius is is simple in a way you saw it you have the aha moment you can't possibly unlearn it the residual memory stops being the general skill set and becomes confidential information that should be unambiguously covered by the nda is when you're discussing how is this framework is actually implemented in solving the problem so back to our bicycle analogy how do the gears work how does the brake work how does the brakes work and and so on is this saddle maybe slightly differently shaped um and and what is the geometry so once you start talking about the actual implementation of this framework to solve the problem uh that's it that's no longer residual memory that's a very specific uh information that you have extracted as a company the acquirer will always uh will always intend to always strive uh to say well if it's the digital memory just forget it people can't unlearn we can do anything about it that should not impose any restrictions on us the target would say well it's the crux of the matter that's why we became so successful we developed this new amazing approach this new amazing philosophy if somebody has seen it they can't be using this in any of the products you may subsequently build that if we are not required both both statements have truth to them this is where reasonable people can absolutely disagree um the operational constraint and again we need to look at every nga with the lens of well what operational constraints and legal abilities this imposes on us the traditional constraints in this case for the acquirer is well the reason we are talking to you dear target is because we have this capability gap we have been trying to solve this and if this transaction doesn't go through we'll keep trying to solve this um and we need to have uh people in the organization who will do this for us and by the way we have assigned the best of our engineers the most the people with the most expertise about the problem on this due diligence so if you're a small company you just don't have anybody else and you as an acquirer you can't possibly promise the target that whoever has been exposed to this due diligence will never work on solving this particular uh this particular thing if the transaction doesn't go through if you're a big company and maybe you have three different engineering leaders or product leaders who could be doing that well then you just imposed a whole bunch of org design restrictions on yourself you couldn't clearly say well we send this guy josh to look into into your technology josh will never work on this problem in our company again and you can think to yourself well it's okay josh is not going to work that we're going to be assigned josh to this other problem but instead jessica um will will be so we'll be working on this problem and jessica is not going to be involved in the due diligence well what happens if jessica leaves the shop in six months and what happens if the problem you thought you would assign josh to is off the strategic roadmap and josh has to go back to solving this particular problem but you've just imposed an unsolvable and completely unnecessary set of constraints on your organization that also a whole bunch of people will forget because by the time uh you are now the transaction is uh is broken off the conversations are broken off and you know you go through a couple of planning cycles by by the time josh is back to solving this problem and by the way he's the skill that framework is stealing his residual memory the worst everybody has already left the company a long time nobody remembers so all of a sudden josh is violating the nda if this is what you have signed up to and that's you need to avoid that um so in my experience this sounds unavoidable well so in my experience if this is uh uh if the acquirer takes this nda seriously with the due attention it they need to pay to it and that and the target is being unreasonable this is where acquirer may actually walk away this is probably the only place where i would i can see people walking away the other reason it was it's kind of hard to find a compromise again because it's it's residual it's in your memory you can't unsee it the couple of proposals i've seen over the years is something along the lines of a clause well it's residual but only if the human did not make a deliberate attempt to memorize and then you get into well what is the deliberate attempt to memorize and you know that somebody understand one day we'll have to articulate but obviously you can't take notes you can't record the sessions you can't copy the code but you also can't come home and based on your memory of what happened 12 hours ago jot down you know what you remember because obviously what you remember in 12 hours is different than what you remember in 12 months so you know you can like dance around this issue a little bit but it's very hard to get a compromise now it sounds like you're getting them legal easier uh so yeah so either you know the target is kind of okay um with this residual knowledge potentially being used in development of a competing product uh that's that's an interesting one and it's it seems really tough to define it yes it is very tough to define because it has to do with with what's going on in humans heads and so it's almost the seller you can't push back too hard otherwise you're going to turn the buyer off and may end up losing the deal there right or you may end up with a buyer who is not serious about the the whole document the whole notion which is also not good so um yeah this one is a tricky one it is it's all it sounds like it's almost the most important one because everything else is a lot more cut and dry versus this area where it's like hey we're very much talk about intangibles it depends on your philosophy if you think ideas at the high level are the most important thing in company execution than yes at the end of the day the the way to get around it is to say well look like as we understand the concepts of the framework how you solve the problem is extremely important but at the end of the day it's all about execution it's how you actually transform this big idea into the actual product and that is that is in fact very difficult as well if not more difficult and this goes you know this goes back to what our idea is a diamond doesn't is it about the actual execution or is it about you know this big monumental thing whenever so many men we should patent it to begin so that that all that you know that could also be part of the discussion well if that's um if this is such a groundbreaking earth-shattering discovery go ahead and file the patent application if you haven't found the path notifications why each of them by definition you know it's more about the execution not by definition but you're putting a high weight on the execution of this idea uh compared to the idea itself so but once you have the conversation going in the direction you know the trust is not there that's well put i mean definitely ideas are a time of dozen let's let's get into what not to do when negotiating an nda well it's uh it's to do it prematurely to start um to put the legal language to prioritize getting the document through over the [Music] fundamental human trust issue what you don't want to do is you don't want to win the battle and lose the war at the end of the day if both parties should want to continue the diligence process if they believe that they're there so you want to get past this hurdle and you want to ensure that as the diligence and next steps in the process evolve that both parties maintain that the trust and both parties are well aware and have internalized what obligations they have taken on on behalf of their companies this is how this is also how i know um the the process has been successful if the people who will actually be doing the work understand well what kind of obligations both parties have taken on and how this impacts who they talk to what they ask how they physically treat the information that they receive um where they need may need to go back to and ask for additional advice if people understand that and if people feel comfortable continuing the conversation then you know you've been successful if you haven't accomplished any of that something has gone off the rails just get people aligned from the beginning and comfortable and it's important it's not just the lawyers are aligned i feel that too i've seen the nda process been executed in parallel to the actual diligence process so by the time it's done the people who are actually doing the divisions have no idea what's in the document all they know is the document assigned and they have a green light to go ahead so they do exactly the same thing where whether the residual memory has been defined one way or a completely different way but that should impact how do they do you do that with your team is review the nda in layman terms and saying hey this is what we're agreeing to make sure everybody knows um the teams should be involved in crafting and they should understand what exceptions have been made in this particular case so you have as an acquirer where i spend most of my three you have the general standard form and everybody understands will understand report and then if the exceptions made then people should be aware of what exceptions have been made and also super importantly why those exceptions have been made what is it that was so important to the other party that we had to make a structure different approach is each person executing a copy of nda or is it one person representing the company that depends on the process of the company but that's typically um one sort of person driving this from the business side supported by the legal team because that's the whole thing if you think about it a lot of times ndas are executed but it's not clear or communicated to others it's just oh yeah we got the nda done it's like okay great what should did are we going to follow our standard process or is this process going to be a little different so that's what you do you brief the team and clarify that how long does that take you to explain what we agreed to or are supposed to follow yeah and if you're a good communicator it shouldn't be that long it could also be in an email but you want to build the awareness the thing like the most important thing is the leader of the real team understands what's at stake like like not every analyst who it like also depends how big your team is right like you could be if you're a team of one or two which i suspect vast majority by number of of those teams are then you've been negotiating you've been working with the lawyers you've been working with the other side so you know but but you need to even if you know if you need to understand how this transfer you need to internalize it yeah yeah and if you have a larger team then other members of the team should also know the key points maybe um best way to put it you need to tell them what not to do in this particular case yeah that's what i'm wondering because if you have a larger team and like this residual memory falls back on a lot of this proprietary stuff that may be more engineered engineer conversations so at that point you need to briefly engineers you need to think about who you select in your due diligence if you have the luxury of a choice and you can you know pick them on three different people uh to go and evaluate this from the technical side that the nta should inform the logic of who actually gets to go yeah this makes a lot of sense this reminds me in our software tool that you have those pop-ups when you log into the data room environment that here's the nda it could be a little thing as a reminder but then again yes this should be a factor in the decision and at the very least it should be in the briefing on the deal or on the due diligence yep so as you bring people in you brief them that that should essentially be the kickoff checklist basically incorporating the kickoff checklist so that if you're using a template format and they're doing subsequent kickoffs as they're adding new teams or deploying new milestones then you incorporate or rehash those right right key terms from the nda or maybe key exceptions in this nda compared to our policy depending on maturity of the organization and size of the team um anything else not to do in nda we talked about not being a pain in the ass negotiator um you know setting up just the general framework the other the other one that gets negotiated from time to time is the solution um and uh none higher clauses again not not a lawyer and this is why lawyers would be super helpful my understanding is very late version is ports especially in some jurisdictions have begun to look significantly more favorably on the clauses from the point of view of the employee who is changing jobs so the courts have made the nun solicits and and is much harder to enforce that's my understanding from very non-legal lay person's point of view those clauses smaller companies frequently ask larger companies for that um two things to remember one the operational um complexity that could come out of this is just incredible and it the the funny thing about those is the target may ask well your big company acquirer make sure that nobody from our small company gets solicited well we're a big company the process you want to keep it confidential we want to have keep it confidential but if you really want me to do this i need to broadcast this to my entire recruiting organization that will immediately lead to the outside world and that's against the spirit um so we need to keep it you know under wraps uh we can't go out and impose across our entire organization a multi-year commitment not to source anybody from from your firm also what if they reach out to us how are we going to handle that the other new ones to remember is this should also be mutual the acquire if the target is not sold and target remains independent they will have all the incentives in the world to attract the person who's doing due diligence on behalf of the bigger company right so there's both parties take risks the risks should be shared mutually however the operational constraints on the bigger organization are significantly uh more potentially income cumbersome yeah it helps to see it from that point of view that from the big large company side when you go through a deal process a lot of times it's just not your firm doing everything in-house you're gonna recruit external teams maybe consulting firms uh qfes operational diligence integration management yeah so on how is that covered in the nda yeah that's typically covered most of the time the parties are defined as a company a and their representative and the representatives are covered by the same obligations so as a larger company or as a company who that invites vendors to help with that you need to make sure that your nga is structured similarly in terms of the obligations of data maintenance uh a return of confidential information distractions international information is the same when you are just closing and when you're receiving and your contractors are um obligated to follow the same rules as you are likely to promise to follow yourself so that's your operational point of view but from the point of view of the particular nda it's fair and it's typically done that everybody who you bringing in would be covered by exactly the same terms as you are now remember if they breach if your third party leaks this information you're on the hook so you will be responsible to your counterparty and then you need to go after your third party to make sure that they in them is by you and make sure that it's their paying penalty not you but at the end of the day you're responsible yeah that's um that's so key thing is to try to use the same language with your vendors as you bring them in and uh know that you're on the hook with they screw something up right and legal should do that right your illegal should know that if you are if you are promising three years confidentiality duration but your contractor only promised you one year of confidentiality duration something's got to get so maybe you're doing an amendment but that's but that's that's for the legal department to make sure those things are consistent yeah point being that nda should be modified for that specific deal based on what was agreed to in the prior originating nda for the transaction that hey if they're used to using some template don't use that template you got to actually use one that aligns with that i think that's the key thing because sometimes your small org you template everything and you're using standardized templates to be honest i haven't encountered that a lot either bringing on a third parties in in mass in mass or you know having to do this dance and and getting things synchronized um maybe that happens maybe i just i just haven't worked in this in those situations you haven't done many deals in the lower middle market there mark have you well you know especially uh i i think like this private company private company you know when you're dealing with just lower middle market aluminum market yeah yeah it's um some of the sophistication winds down a little bit right what um what about um let's see what questions i got here if the disclosure restrictions are too high do you walk away from the deal verify disclosure restrictions that whatever you're required to disclose um or your restrictions on so i guess it's the other way around if they have restrictions on information they can disclose um you know if it's like too high like okay let's back this up a little bit let's say you're in a scenario you're negotiating nda's and you have a direct competitor right and you're very sensitive about the customer information and that's something that you're limiting or restricting the disclosure around the customer information right you know does is that something that could deter the buyer completely from their interest in the deal operational constraints on how due diligence is done should never cause people to walk away what you have decide seems like an imminent opportunity for to get creative with the process and to put uh to like figure out well what specific information is just called how old is this information can you just cause what you already know like there's a lot of room for maneuvers in the scenario you described and this is a great example of how those parties will work together in the subsequent months of diligence will they get creative to accommodate the concerns and what are exactly the concerns what is it exactly that people are trying to prevent other people's eyes on is it the product is the pricing is it the identity is it the contact information i don't [Music] right so make it customers one two three four five six okay that's enough for you to do your diligence but you know again back to the point we can work together and creatively find the solution how you can tell me the degree of your business without disclosing the actual names of your customers if this is what concerns you this lends back to the the prior thesis that lays down the groundwork for how you're going to work together through the rest of the deal exactly and most of the how will you do the diligence how will your structure how accommodating and problem solving will you get when you actually do the final documents what um makes any tips advice what do you think makes nda successful so again approach this from the point of view of this is an exercise of being accommodating being in the problem-solving mode laying the foundation of how we will treat each other going forward uh there are very few things in this agreement that should cause parties to walk away all of it should be imminently solvable residual memory may be one in some circumstances rare but this is the one where i've seen people being on the brink everything else should be imminently solvable and this the the complexity and the number of the issues discussed at nda is a tiny tiny fraction of what this companies will encounter as the deal moves forward so if you can't solve that maybe and you walk away maybe just take yourself six months of of hard work uh and blood sweat and tears uh in the future because you if you can't negotiate nga you probably won't be able to negotiate a 300 page closing binder yep yep what about the experience have you seen any tools that help this process go better because it seems like we're we're doing redline but is there i don't know if there's anything that's um no no i have not other than the usual legal maybe he's sending over a versus a pdf to sign i don't know yeah i haven't seen anything i i haven't seen a database of uh standard terms or well by definition this agreement confidential so i can't i can't think of any i guess the best tools that are called call your lawyer and figure out what because they do it presumably in day out especially outside council so they've seen by definition way more than you on the commercial side but no i have not seen any tools yeah i feel like that's what our industry needs is like a more of these builder type of products where oh like here we have a series of terms either include or not include in the nda but to be able to see a series of examples that go in different directions and build off of that template per clause because you always have one template across the whole thing documented but not so much a little variety to build one out the best thing i've seen to be honest is an nda with 10 footnotes for internal use only that explain for each of the footnotes this is the term this is the reason this is what we're willing to do these are a couple of creative approaches if your counterparty feels a certain way um and your the residual memory clause but everything else is okay the jurisdiction is california because we're in california but delaware is okay if it's a different jurisdiction you just like try to push back but don't walk away kind of thing um and those were damn good lawyers do yeah this is this is these are yours you know large corporate japan corporate legal departments uh great and they're good good lord yeah i guess you don't see most of the the internal markups but uh you need to get them updated market conditions change if it's a who has the negotiating power is a big consideration here is that a buyer's market or is it a seller's market is that a competitive process where you know there are three other bidders and it's a must-have technology that you do you don't want your competitor to have or is this an aqua hire where the company is running out of cash and they have no customers and they have like super interesting technology and 20 engineers it's very different negotiating dynamic based on the actual commercial consideration of english of the of the negotiating power this is really good insight on nda's i feel so much more knowledgeable mark what's the craziest thing you've seen in mna yeah and you're you're going to ask that um i'm still chase i see a real chase uh where over a period of a decade and i've only been with with this company for much shorter than this um like clockwork every couple of years um the acquirer proposed the acquirer approached the target and every two years offered twice the amount of the last two of the two years before um and the response the ask was always double that so it went from two and four to four and eight to eight and sixteen and it just kept going on clockwork every two years double every time it was hilarious you could take bets i've seen that how long did it end at all uh they are not together oh my god still two separate companies wow yeah that's funny it was people could take bets there's a banker that might be able to hash that deal out with the right model i'm sure if they approach well i haven't been involved in that particular dynamic for a few years and i know they're still independent obviously but i'm sure if one approached the other the response would be the same it will give you x though it's 2x that's funny that's what i was saying they're not agreeing on the metrics maybe they need to look at that or define what's market but mark thank you so much for your time today enjoyed this conversation absolutely thank you thanks for having me