The Increasing Utility Of AI In M&A Transactions

Artificial intelligence (AI) is an impressive and evolving technology, which is being used increasingly across many facets of the economy — and the legal market is no exception. AI, and the various tools it enables, has the potential to increase speed and efficiency of most legal workstreams, especially in the realm of M&A. From analysis and due diligence to document drafting, AI has allowed business and legal professionals to focus more on the larger, higher-value issues. AI technology, however, is not a magic wand, and professionals should remain wary of the risks associated with it.

Early-stage research, analysis and preparation

AI can assist M&A professionals in identifying potential acquisition targets and pursuing those leads by reviewing vast amounts of information to identify ideal target companies based on specific criteria. Once targets are identified, M&A professionals can use AI to more accurately estimate transaction costs, create outreach tailored specifically to the targets and analyze the markets in which the target operates. The faster deal teams can move through these initial hoops, the sooner they can begin focusing on the more intensive, critical areas of the transaction.

Due diligence and drafting

AI tools can also reduce time and energy spent on due diligence and document drafting, by helping to create initial due diligence requests and assisting with the review of the due diligence materials. As part of that process, AI tools can extract or flag specific items to create follow-up requests and diligence memoranda.

Lawyers can also use AI to more efficiently draft transaction documents of all sizes. AI is particularly well suited for creating shorter, more formulaic ancillaries such as officer's certificates, resolutions and conveyance documentation, but the technology can also help with larger documents like purchase agreements or governance documents. Legal professionals who can cut down on time spent creating due diligence charts and memoranda, or reviewing and re-reviewing documents, will be able to focus more time on higher-value tasks and close deals faster.

Risks

Although transformational, AI technology should still be approached with caution. AI tools require oversight, and users should be aware of, and educate themselves on, certain risks such as AI's tendency to hallucinate and/or produce incorrect output. AI's effectiveness is also dependent on the quality of data inputs and prompts. For the time being, it's best to consider AI work product as a starting point to be further vetted and refined through human review and input. AI is not a replacement for human judgment, and firms and businesses should form policies around the use of AI to ensure positive outcomes. Lawyers in particular should always consider how evolving technology interacts with client confidentiality and other professional duties.

Although AI can help professionals identify and capitalize on opportunities, the long-term impact of such a rapidly advancing technology on the national and global economy is hard to anticipate. But one thing is clear in the near-term: the utilization of AI throughout the entire deal cycle will allow M&A professionals to identify and close deals with increasing speed and efficiency, adding to an even more competitive and fast-paced M&A environment. Private equity firms, law firms and other companies engaged in M&A transactions would be well-suited to capitalize on the range of available AI tools to stay ahead of the curve.

Originally published by Crain's Cleveland Business.

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