Technology Expands M&A Lawyer’s Role in Shaping Successful Dealmaking

Written by: David Curle

November 9, 2021
Mergers And Acquisitions Practice Trends

5 minute read

AI technology has been proven to enhance the efficiency and accuracy of due diligence document review, which is increasingly important in an era of accelerating deal timelines.

M&A lawyers are discovering, however, that there’s more to the benefits of using contract review technology than just the core task of reviewing documents as part of the due diligence process.

In a recent pair of roundtables - one in the UK, one in the US - Kira hosted discussions of the various ways that contract review technology is creating new opportunities to provide value to clients. The essential task of uncovering risks through the due diligence process is the heart of the value that lawyers bring to the M&A process. But the participants in these roundtables identified some additional value that technology can inject into the lawyer-client relationship, in three areas in particular:

Organizing the Data Room

A common lament shared by roundtable participants is that data rooms can be messy, unorganized places. When time is of the essence, many M&A teams find that valuable time is wasted on the front end of the process, simply trying to get a clear picture of exactly what kinds of documents need review.

Technology is useful for sorting out this initial phase of the deal. Some organizations are letting tech-oriented colleagues into the transaction at an early stage, to organize documents and see what’s there. AI-based tools can take a first pass at classifying documents, sorting into folders by document type, and helping to set the parameters for the review work to be done.

Participants gave examples of how technology can deal with different situations on different types of deals. One respondent described a data room with 11 folders in addition to just the contracts folder - what’s in those other folders? A quick AI-based scan can help reveal any overlooked documents.

Another early-stage application is using technology to help clients set the scope of review. For the larger, known risks, clients want senior lawyers - the emphasis there is on quality, not quantity. But AI-based tools can efficiently look through everything else in a data room when there are large numbers of documents. Where there is less risk, and large numbers, tech can efficiently look for key clauses that can be problematic. For the larger risks, the process is less technology-driven and more lawyer-driven. As one partner put it, “There’s often a small number of big contracts that need attention. But then there is a long tail of smaller-value contracts where the technology is really useful to quickly review and identify potential risks.”

Another situation is where the client believes a large set of contracts are “all on the same paper.” One benefit of using AI is to quickly extract those terms to see if they really are consistent or not.

Delivering More Valuable Reporting to Clients

It is one thing to do a document review and give the client a comprehensive understanding of risks. It is quite another challenge to deliver that information in a useful, readable, actionable report. Many of the roundtable participants felt that this is an important next step in delivering better service that is gaining in importance. Some compared the outputs that lawyers deliver to clients unfavorably with reports that clients get from financial and accounting teams. Those other teams are better at using graphics, visualizations, and better formatting to more clearly communicate the results of a diligence process.

With a good review platform, “you can pretty much get it to do whatever you want it to; for example, you can extract just the indemnity clauses and create a targeted report about them.” Others reported that the products on the market today are getting much better at helping visualize data.

And it’s not just about better communication with clients. Technology simply saves time both on the review phase and the reporting phase. “Just extracting and formatting output alone saves a TON of work,” said one partner. That’s more time that can be spent consulting with and advising clients.

Post-Deal Integration Support

One way for M&A teams to make themselves “stickier” with clients is to make themselves indispensable even after the deal is done.

A Total Diligence approach that casts a wide net and looks at every contract related to a deal generates a lot of data - data that helps the buyer understand the operations and financial situation of the acquired company. All that data provides a structured, organized view of the company that can be leveraged in integration efforts.

One participant noted how important it is to use the diligence phase as a way to build trust with a client and to help set up a longer-term relationship based on the deal. “Clients can be more focused on how they want to do diligence, focusing on material risks. AI-based review tools can look at the less critical areas - employment and commercial contracts, where clients don’t necessarily want to spend a lot of money.” This additional diligence scope can be positioned as an additional value-add, a way of leveraging the review that’s already taking place to jump-start integration efforts.

Speed Plus Value

Taken together, these two recent roundtable discussions tell us that lawyers are starting to think of AI-based contract review software not simply as a way to conduct wider and more efficient due diligence, but as a way to offer their clients additional and better services. The value can come at the front of the deal cycle, as the deal team tries to understand exactly what kind of documents they are dealing with, or it can come on the back end, as the team improves its reporting and communication with clients, and as they support the important integration phases of the relationship.

One firm leader described automated document review in terms of what has happened with eDiscovery. In that field, clients were dealing with larger and larger quantities of documents even as they worried about costs. Eventually it became harder to avoid looking at AI-based tools because they became industry standard and competitors began using them. As with eDiscovery, tech tools have also become retention strategies, as they relieve associates of tiring manual work. For both eDiscovery and due diligence, “AI seems to be table stakes, and it’s almost negligence not to use it in some situations.”

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