Nowadays, the legal technology market is overcome with statistics of time savings and efficiencies during due diligence reviews. But this fails to get to the crux of the issue for many law firms, who want added insight into the entire data room and confidence in their findings. The recent use of Luminance by a tier 1 law firm during a pressurised M&A review perfectly illustrates the importance of speed, but more crucially, the technology’s ability to instill lawyers with the confidence that nothing has been missed. It is not simply about the time savings, it is about doing a better deal.
The international law firm and member of the ‘Global Top 100’ was approached by a client who was considering buying a competitor. The competitive nature of the bid meant that the deal was on a very aggressive timescale and the target was trying to maximise the value of the business and drive the highest price they could. Two partners in the firm, both of whom had an intimate understanding of the organisation and act as a trusted advisor in all of its big business decisions, were assigned to the deal.
The partners allocated 165 hours to the entire due diligence exercise and originally decided to only take a sample of the documents as there was no way they could review the entire data set in the timescale they had been set. The deal was a critical move for their client, and the firm needed a solution which could be implemented quickly, was easy-to-use and could deliver value immediately. The data room was opened just before midnight in a bid to reduce the opportunity for the buyer to dig around and find potential issues.
On the first morning of the review, one of the partners quickly noticed that some of the target’s 900 customer contracts did not seem to have any automatic renewal clause. Concerned by this, the lawyers used Luminance to conduct a 20-minute review of all the documents in the data room to identify with complete confidence that only 40% of the contracts contained automatic renewal clauses in any form, meaning the business could lose more than half of its customer base in less than a year. With legacy systems that require users to know what to look for in advance, finding an automatic renewal clause, or lack there of, would be near impossible. The very next day, talks broke down during a meeting with the target largely due to this misrepresentation, which made the company significantly less valuable than the price on the table.
Without Luminance’s flexible machine learning capabilities, finding this specific yet crucial misrepresentation would not have been possible. Not only did the firm save time, but they were able to deliver decisive advice to their client very quickly, confident that nothing had been missed. It is vital that legal technology does not become a race to the bottom, but instead empowers lawyers to do a better, more rigorous job for their clients.
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