It is safe to say that it has been a pretty tumultuous year for mergers and acquisitions. The shock of Covid-19 pulled the handbrake on M&A activity for a large part of 2020, yet a surge in M&A deals in the latter half of 2020 saw the overall M&A volume globally surpass $1 trillion in the third quarter, bringing the year-to-date total to $2.2 trillion. As companies continue to reshape their businesses, deal makers predict that this resurgence in M&A transactions will continue into 2021. But behind every successful M&A transaction is a rigorous due diligence process. Using Luminance, lawyers are able to revolutionise the way they go about due diligence, quickly gaining a clear and deep understanding of the target company and its operations.
Appetite returns for M&A- but effective due diligence is critical
Business leaders across the globe are rapidly adjusting their plans in order to meet the challenges posed by Covid-19. For many, making acquisitions remains the most efficient way to scale. There has also been a slow trickle of distressed M&A activity in the wake of restructurings and insolvencies which many predict to reach its apex over the next year. SPACs or ‘Special Purpose Acquisition Companies’ have also really come into favour- acting as a shell company, a SPAC’s sole purpose is to list and buy businesses looking to go public. Recent figures from the Goldman Sachs Group Inc. found that some 205 SPACs raised $61 billion in equity IPO proceeds in 2020, a trend that they believe will continue in 2021.
But whilst M&A activity looks set to increase, one of the biggest hurdles in the acquisition process remains around carrying out effective due diligence. Acquirers need to be able to understand and verify information relating to a business, whilst companies looking to make their finances public in some way - be that through an acquisition or an IPO – often look to gain a deeper awareness of their contractual landscape before entering into negotiations. Indeed, due diligence not only helps organisations determine whether to proceed with a deal, but can often dramatically impact the deal value as well as shape the go-forward strategy post-acquisition. Indeed, on the buy side, while a deal may look attractive on the surface, any underlying risk or ‘skeletons in the closet’ can drastically change the picture. This is particularly pertinent in the current climate- because selling a business is often a way of avoiding liabilities, firms will be on the lookout for hidden solvency issues and potential liabilities that may not be clear when reviewing documents at surface level or when relying on the review of small samples of larger document sets.
Nonetheless, the exponential increase in enterprise data has meant that lawyers are now expected to review hundreds- if not thousands- of documents for a single M&A transaction. Given the high-pressured and time-sensitive nature of such a review, relying on time-consuming and costly manual review or risky ‘sampling’ methods is no longer an option.
Be at the forefront of the deal with Luminance
Luminance’s game-changing technology is revolutionising the way that lawyers go about due diligence. Powered by a unique blend of supervised and unsupervised machine learning, Luminance is able to immediately read and form an understanding of vast datasets, instantly surfacing to the lawyer document types, key datapoints, anomalies and clauses such as Change of Control, Assignment, Limitation of Liability, Termination and Confidentiality. This includes the ‘unknown unknowns’- the hidden risks in the dataset that the lawyer was not aware of and thus did not know to search for.
Luminance’s ability to uncover ‘red flags’ proved invaluable for a Global Top 100 law firm who used the tool to complete a high-pressured due diligence - Luminance was able to immediately identify that only 40% of the target customer’s 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. The legal team were able to quickly highlight this risk to their client, helping them avoid a potentially hazardous deal.
The proprietary blend of supervised and unsupervised machine learning cements Luminance as the most robust tool for due diligence on the market. In fact, Bird & Bird were able to increase the contracts they reviewed from 76 per hour manually to 3600 per hour in Luminance.
And most importantly, by allowing lawyers to get an overview of the data room from the first day of deployment, lawyers no longer have to waste valuable time or resource sifting through documents to find critical documents or datapoints. Whether worrisome areas might be contracts with countries that have international sanctions against them, or a vital ‘Change of Control’ clause buried deep within thousands of documents, Luminance helps highlight potential issues instantly and as such allows lawyers to prioritise their review. This also means that lawyers are able to focus more of their time on delivering value for their client, for example by looking at how a particular clause or document may impact their client’s interests or how a perceived ‘red flag’ can drive down the value of a company. Moreover, by allowing lawyers to respond quickly and decisively to their clients, M&A ‘deal-time delays’ no longer have to be an issue on the legal side of things.
Flexible to the review needs
With Luminance’s Automatic Document and Clause Compliance technology, lawyers can choose the parameters of their review. For instance, if a lawyer was interested in reviewing the corporate structure of a company and wanted to focus on employee benefits, they would be able to select an acceptable ‘model’ clause or document. Luminance would then be able to analyse the details of the employee benefits across the entire contract suite and highlight to the lawyer which of these deviated from the acceptable standard, and how.
And with many legal professionals continuing to work from home, Luminance’s easy cloud-deployment is vital in ensuring that legal teams are able to securely access their documents. The platform’s advanced collaboration tools - such as the ability to automate the allocation of tasks or documents to colleagues, share findings and track work progress - are essential in ensuring that there is no duplication of work product or time lost in administrative tasks.
Do more, risk less with Luminance
Adopting the right technology to assist with contract review for M&A can make all the difference and this has never been so business-critical in the midst of an M&A boom. Luminance’s pioneering machine learning is the only platform that delivers real, competitive value to lawyers from the first day of deployment, allowing lawyers to identify and mitigate risk faster than ever before.
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