How AI for M&A due diligence is changing every aspect of the deal process
- 1. How is AI Transforming the due diligence process?
- 2. AI is accelerating M&A deals
- 3. AI is ensuring greater accuracy and consistency
- 4. AI is enabling law firms to capture a greater share of business
- 5. AI is opening doors to strategically advise your client
- 6. Can due diligence truly be automated?
- 7. A new era for due diligence reviews
- 8. About the authors
Conducting due diligence can be a study of frustration. Tight timelines, high stakes, and, in some cases, disaggregated deal teams compound a deal’s complexity. When the client outsources the document review “grunt work” to a lower-cost regional firm or alternative legal service provider (ALSP), then hands over these reviews to their primary law firm to complete due diligence, it can be difficult to control quality and deliver superior services.
Artificial intelligence (AI) will change every aspect of this process. Indeed, the AI revolution is well underway and due diligence will never be the same. AI is speeding up the pace of deals while its level of document analysis is beyond the capacities of even the most dedicated attorney. It’s ensuring better consistency in diligence and eliminating redundancies. Most of all, AI-fueled diligence enables law firms to devote more time and resources to what matters most — offering value-added services to their clients.
How is AI Transforming the due diligence process?
AI is pre-trained technology designed with input by veteran legal professionals, so it hits the ground running in terms of document analysis. An AI sweep of a document upload will pinpoint the potential risk factors within minutes. AI will also search for and document any keywords or phrases the law firm seeks.
Artificial intelligence not only reduces the labor-intensive work that junior attorneys used to spend days on, but it also dramatically improves the quality of the work. Searches are deeper, document analysis is more thorough, and the process is much faster. For example, junior attorneys often need days or weeks to do contract summaries; now, they can generate them within seconds. This, in turn, empowers legal teams to do more accurate diligence reviews at a reduced cost and in a shorter timeframe.
Document Intelligence, a powerful due diligence software for mergers and acquisitions (M&A) deals, changes the legal tech game by using pre-built AI models that work for your business on day one. They’re expertly developed by Practical Law attorney-editors, domain specific, and continuously maintained with no upkeep required from you.
Using the power of AI within Document Intelligence, lawyers can classify, extract information, and analyze documents in more innovative ways. In turn, a client gets greater speed, heightened accuracy, and more cost savings — making trade-offs a thing of the past.
AI is accelerating M&A deals
Given the client’s tight deadlines and cost restrictions, document review must move quickly, so lawyers may only review a subset of documents. Consequently, some potential landmines may remain undiscovered. An incomplete and incomprehensive document review exposes the client to hidden risks, but this no longer needs to be the case.
Using the power of AI, Document Intelligence rapidly analyzes, categorizes, extracts, and delivers pertinent information from documents, even if the total volume is in the thousands. Artificial intelligence software scans a document and immediately breaks it down into searchable data while extracting critical clauses and essential obligations.
Intensive document review has been a slow, arduous process, which is doubly painful when you consider “time kills all deals.” With Document Intelligence, lawyers can conduct document reviews faster and more efficiently, which could radically alter review timelines. By reducing diligence costs, law firms can provide clients with lower estimates and offer a modernized M&A due diligence process. In turn, the client will have more spend potential with your firm.
AI is ensuring greater accuracy and consistency
One executive customer put it this way, "Prior to adopting Document Intelligence technology, by missing one obligation it cost us six figures for something that should have been so simple.”
AI speeds up the pace of due diligence and document review, giving users a deeper insight into documents. It’s a level of discovery that can be strenuous for lawyers to achieve, even via a labor-intensive physical document review. Humans were not built to read hundreds of documents line after line, searching for a needle in a haystack when the needle may not even be there.
AI makes it far easier to organize and assess documents, automatically doing so upon uploading. A user can upload stacks of leases, contracts, spreadsheets, and licenses in a single batch and the system will classify them at once, even if there are multiple documents within a single PDF file.
AI changes and improves your firm’s priorities. Using AI for menial tasks gives you a more sophisticated ability to access and explore documents, which heightens a lawyer’s ability to find landmines. In the past, they may have missed something buried in a “non-essential” document that, in truth, held a serious potential risk — such as an expired patent, a non-compete clause, or a potential labor violation. AI analysis can better detect this.
One Document Intelligence user says that, concerning diligence review, "We hit a grand slam with a $4 million find: searching for a needle in a haystack when we didn’t even know the needle was there. This would not have been possible before we had Document Intelligence technology.”
By providing incredible speed, sophistication, and cost-effective options, AI enables law firms to capture more of a client’s external spend. According to a recent study, Thomson Reuters noted that Document Review was among the top five tasks outsourced to ALSPs. With Document Intelligence as a tool in the toolkit, law firms can join ALSPs in addressing a gap in the market for more cost-effective, technology-driven legal work.
Law firms with AI systems can now offer competitively priced document review services that cost-conscious clients would normally outsource to an ALSP to save on costs. These clients seek transparency and certainty about prices, and given that AI-assisted document review is more efficient, they will gravitate toward innovative firms that provide this service.
According to the research above, some law firms recognize the potential of new business models to transform the industry and have established their own in-house ALSPs to win more document review business.
Not only is capturing a higher share of external spend great for a firm’s bottom line but keeping the entire diligence process under one roof may improve overall accuracy and quality. When one segment of the diligence process is done by an external ALSP and another by the client’s primary law firm, the process disaggregates. This heightens the potential for something critical to slip through the cracks.
AI is opening doors to strategically advise your client
A law firm using AI also gains greater knowledge about a transaction. Running due diligence for an acquisition, the law firm acquires substantive insight into the target company — where its most significant vulnerabilities and strengths lie. Using AI means the firm can offer its clients more valuable and precise strategic advice.
Document review undertaken by AI and machine learning will detect significant clauses from deep within a document, where risk could be buried. Now a lawyer can quickly generate a report to tally up potential red flags and then, just as quickly, classify them by category and priority — for example, sorting vendor contracts from high to low potential risk.
Armed with this information, lawyers can then map out a detailed, strategic path for their client. They can show where the biggest threats to a deal are located and where the client’s priorities should lie in terms of neutralizing them.
As one user notes, “The Document Intelligence platform opened the door to numerous possibilities and opportunities for critical research projects, process improvements, and front-end automation.”
Can due diligence truly be automated?
Incorporating AI into due diligence may present a career challenge to a junior lawyer. After all, up until recent years, much of an entry-level legal professional’s job has entailed grappling with document collection, organization, and analysis. AI will indeed automate many of these tasks, increasingly making some of this clerical work redundant.
However, that’s not to say that using AI for document review and retrieval removes human beings from the equation — far from it. AI is a tool: one that requires the skills of trained lawyers to employ it to its greatest capacity.
Take the M&A due diligence checklist: AI will enable lawyers to fulfill these tasks faster and more accurately. Yet lawyers will still be responsible for managing the flow of an M&A review and verifying that they complete all tasks correctly.
AI will speed up document collocation and sharpen searches; this transformation will clear out bottlenecks and make deals close faster. But it won’t replace an expert lawyer’s crucial analysis of AI outputs.
AI does have the potential to transform the junior lawyer’s role substantially. No longer will a junior attorney be stuck sorting through documents in a deal room. Now, at the very start of their career, a lawyer can become a valuable part of innovative, rewarding client services.
By using AI essentially to clear the ground, lawyers gain more space to work. Whether at the associate or partner level, they have a new level of comprehensive data analysis that they can use to advise clients expertly. They’ll also have more time to employ these analyses, as AI eliminates the hours spent trying to find a particular clause in a contract.
A new era for due diligence reviews
AI technology is streamlining due diligence in mergers and acquisitions. Law firms adept at AI can win on several fronts; they can win more of a client’s business. They can reduce their labor costs and get projects and reviews done at a pace unforeseen even a few years ago.
Watch a webcast with expert input about closing deals faster and how Document Intelligence provides powerful due diligence and contract analytics capabilities to empower legal teams to access, understand, and activate the critical information in their documents quickly and efficiently.
About the authors
Chris O’Leary is a freelance writer and editor based in western Massachusetts. He is the managing editor of Thomson Reuters “The M&A Lawyer” and “Wall Street Lawyer,” and the author of two books on popular music.
Raees joined Thomson Reuters in October 2021 and is the head of mergers and acquisitions for the general counsel’s office. Before joining Thomson Reuters, Raees was a senior associate in the corporate and securities group at Blake, Cassels & Graydon LLP. His practice focused primarily on international and domestic capital market transactions, including public and private financings and mergers and acquisitions. Raees holds a Juris Doctor degree from the University of Toronto and a Bachelor of Business Administration degree, with a specialization in finance, from the Schulich School of Business at York University.