This scenario may seem all too familiar: your firm is working on a new deal and hundreds of documents are dumped into a virtual data room. Many aren’t correctly identified. Some have no connection to the matter at hand. There may be five copies of the same document, all of which are missing the same page. Lawyers are tasked with manually reviewing contracts to extract relevant information, and they may spend days just trying to get things into order.
Managing transactions like this is chaotic, inefficient, and potentially costly – both in direct financial terms when it comes to operational costs, and in terms of risk. Processes are time-consuming and frustrating, visibility across deals is poor, and adopting best practices seems impossible.
Too often in this scenario, due diligence runs longer than expected, dragging out the deal process and taking away valuable time advising clients. The average time to close an M&A deal is estimated to have increased over 30% during the last decade. Younger lawyers are at particular risk of burning out by spending so many hours on document verification, while burdened with fears of committing a deal-threatening error.
This doesn’t have to be the case. For example, a 2022 Thomson Reuters customer survey found that inadequate technology contributes to more than a fifth of delays in the due diligence process. Law firms can more adeptly handle the ever-growing volume and complexity of M&A documents by supplementing lawyers’ skills with an end-to-end transaction management solution with powerful AI capabilities to speed up due diligence reviews. Automating parts of the due diligence process and introducing smart workflows into the mix enables law firms to guide their clients through any unforeseen complexities, lower their risk, get deals over the line faster – and do so in a more controlled and consistent way.
|What are the steps in the M&A due diligence process?
|Step 1: Identify and organise
|Step 2: Document review to surface risk
|Step 3: Report and advise
|Deliver more value by streamlining transaction management
|Win more M&A business
Explore more on how Thomson Reuters new transaction management solution helps M&A teams boost efficiency, reduce errors, and close deals faster.
What are the steps in the M&A due diligence process?
There are three major steps when undertaking due diligence reviews:
- Identify and organise
- Document review to surface risk
- Report and advise
Using AI-driven document analysis for each step helps the process go more smoothly and accurately, enabling clients to be proactive about reducing any risks in their transactions.
Step 1. Identify and organise
Start with the basics. What types of documents are in the virtual data room? Junior lawyers can get bogged down in document review, making it hard for them to perform at the top of their game. Automating document identification by using software that classifies documents via factors such as date, type, and language — such as invoices, contracts, regulatory documents, etc. — makes document intake more efficient.
Next, a law firm needs to organise them for review and analysis. Using AI documentation, a lawyer can upload large volumes of documents exponentially faster than via traditional methods. After classifying them, documents can be assigned to particular reviewers and security permissions can be applied.
Firms can employ pre-set parameters to organise documents quickly. These custom-made analysis settings address the needs of a specific deal. For example, if a seller’s business is largely in government work, document analysis software can organise documents into local authority or central government contracts, then further differentiate them via document type, value, and contract length.
Step 2. Document review to surface risk
Once all documents are organised, a law firm must fully assess them with a sharp eye for potential deal risk. Take, for example, language found in non-compete agreements and exclusivity clauses in employee contracts. There could be potential threats from an ongoing lawsuit or from unforeseen tax obligations — among many other factors.
In the past, there was a degree of tradeoff at this stage of the due diligence process. Did a firm urge its lawyers to get through document review as fast as they reasonably could, or did it task them with intensive analysis that would be likely to delay the deal? Neither choice was ideal. Artificial intelligence document analysis frees a lawyer from having to make that decision.
Automated document review is based on AI and machine learning, which can detect significant clauses from deep within a document where risk could be buried.
Within seconds, a lawyer could generate a report tallying up potential red flags and classify them like this:
- Red flags sorted into categories: Commercial contracts, litigation, employee contracts, tax documents, financial statements
- Risk-stratified red flags: Flagged documents ranked low, medium, or high
Step 3. Report and advise
How should a client handle risks associated with its deal? Your firm can show where the most pressing risk lies and advise on how to address and reduce it. This is the type of advisory task that lawyers should be spending their time on: it’s truly value-added legal work, not just paperwork. By conducting more thorough risk analyses than before, yet in a fraction of the time, law firms improve the quality of their client conversations.
Preparing a quality risk report is central to this step of the process. Using an AI-generated, easily digestible document analysis tool gives clarity to the client advisory process and enables a law firm to scale its due diligence projects, thus creating a more comprehensive risk analysis.
Delivering more value by streamlining transaction management
Due diligence is just one (though critical) part of the wider transaction management workflow piece. Many of the common challenges law firms face in managing transactions well can be solved by leveraging technology to standardise and simplify the entire deal process from start to finish.
By taking a tech-enabled approach, M&A teams will be empowered to:
Saying goodbye to hours spent on manual tasks and hello to automated workflows, central document repositories, and AI-powered data extraction
Minimising the risk of mistakes in document management, ensuring that transactions run more smoothly
Close deals faster
By expediting the deal-making process, you can provide closing books to clients in less time than ever before.
To help firms manage their transactional work more effectively, Thomson Reuters has introduced a new solution that harnesses the capabilities of HighQ, Document Intelligence, and content from Practical Law in conjunction with Dealcloser software.
Thomson Reuters end-to-end transaction management solution is unique. From one platform, firms can access a single source of truth across the entire deal lifecycle. They can easily create well-organised, permissioned virtual deal rooms to manage documents. They can collaborate securely with colleagues, clients, and counterparties. Undertaking risky ‘sample’ reviews or missing key information will be a thing of the past. They can have tasks auto-assigned and receive important alerts. And they can 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. No longer will they have to navigate multiple different 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 either. Firms can provide superior client experience while boosting profitability. And clients will be more satisfied.
Win more M&A business
Introducing the first end-to-end transaction management solution from Thomson Reuters