How to modernize due diligence reviews in transaction management

3 steps to a modern M&A due diligence process with Document Intelligence from Thomson Reuters
Chris O’Leary

Closing a deal can be a rewarding part of an attorney’s career. It’s part strategy, part insight, and a hefty dose of legwork. Perhaps the most mission-critical part of any deal is the time-consuming process of due diligence. Toiling through hundreds of documents in a virtual data room can be daunting. Young lawyers, who often carry much of the burden of document verification, balance the risk of burnout with the nagging threat of a deal-compromising miss.

It’s common for due diligence to take longer than anticipated, delaying the close date and eating up lawyers’ valuable time. According to a study by Gartner, the average time to close a mergers and acquisitions (M&A) deal has increased by over 30% in the past decade.

Law firms face significant challenges in transaction management, including a lack of visibility across deals and manual procedures. Inadequate technology can contribute to many delays in the due diligence timeline. 

But relief is available. Law firms can more adeptly handle the growing volume and complexity of M&A documents by bolstering attorneys’ skills with technology. An end-to-end transaction management solution powered by artificial intelligence (AI) can speed up document verification and reviews. Automating substantial parts of due diligence enables attorneys to focus on other tasks, such as guiding their clients through unforeseen complexities, reducing their risk, and closing deals faster.

Lean into technology

Lawyers have embraced technological advancements in many areas to add efficiency and accuracy to their work. Using AI-driven document analysis for each of the steps below can reduce time spent and enable clients to take proactive steps to minimize the risks of their transactions.

1. Identify and organize

Attorneys must start by determining what types of documents are in the virtual data room. Identifying and organizing them begins to put the chaos into order. An M&A checklist can also help.

Manually, this process could take weeks. However, automating document identification by using software that classifies documents makes the intake process much more efficient. Lawyers can arrange documents by date, language, and type, including invoices, contracts, regulatory documents, etc.

Next, the documents need to be organized for review and analysis. Artificial intelligence makes this easy. Firms can use pre-set parameters to manage files quickly and customize these settings for the deal at hand. For instance, if a seller’s business is primarily in government projects, document analysis software can classify files by local, state, and federal contracts and then cross-categorize them into document type, value, and contract length. After classification, documents can be assigned to particular reviewers and have security permissions applied.

2. Document review to surface risk

Once the software has organized all documents, they should be scrutinized to identify potential risks associated with the deal. For instance, certain language found in non-compete agreements and exclusivity clauses in employee contracts could surface potential threats such as an ongoing lawsuit or unforeseen tax obligations.

In the past, there was some tradeoff at this stage of the due diligence process. Firms had to decide whether to encourage their attorneys to expedite document reviews to meet a close date or ask them to do an in-depth analysis, potentially causing delays. AI-powered document analysis frees law firms from making that decision.

Automated document review can detect important clauses deep in passages where potential risks may be hard to find. In seconds, a comprehensive report can be generated, classifying threats like these:

  • Red flags sorted into categories: commercial contracts, litigation, employee contracts, tax documents, or financial statements
  • Risk-stratified red flags: flagged documents ranked low, medium, or high

3. Report and advise

When clients are aware of risks in their deals and advised on how to mitigate them, they feel confident making business decisions to move forward. Using an end-to-end transaction management solution, lawyers can pinpoint risks and create thoughtful guidance on how to proceed — this advisory role is where they truly add value.

Standardize and simplify

Standardizing processes not only saves time but provides consistency and accuracy. Attorneys can leverage technology to standardize and simplify the entire deal process, which allows teams to:

  • Boost efficiency. Hours spent on manual tasks are eliminated, and automated workflows, central repositories, and AI-powered data extraction are utilized.
  • Reduce errors. Minimizing the risk of mistakes in document management ensures smoother transactions and satisfied clients. 
  • Close deals faster. By expediting the deal-making process, lawyers can provide closing books to clients more quickly than before.

To help firms manage their transactional work more effectively, we have introduced a new solution that harnesses the capabilities of HighQDocument Intelligence, and Practical Law products in conjunction with our integration with Dealcloser.

This end-to-end transaction management solution allows firms to access a single source of truth across the entire deal lifecycle, all from one platform. They can easily create well-managed, permissioned virtual deal rooms to manage documents. They can collaborate securely with colleagues, clients, and counterparties. Undertaking risky “sample” reviews or missing critical information will be a thing of the past. They can have tasks automatically assigned, receive important alerts, and automate deal reporting and the deal closure process — even on the most complex transactions.

Everyone benefits. M&A teams can work smarter, reducing the administrative burden and mitigating risk. They will no longer have to navigate multiple systems for a single transaction. Innovation teams will be better able to roll out the adoption of best practices because they will not have to manage disparate systems. Firms can provide superior client experience while boosting profitability, and clients will be more satisfied.

Introducing the first end-to-end transaction management solution from Thomson Reuters

Boost efficiency and manage more deals faster