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Deconstructing the dataset: the AI approach to M&A due diligence

22 October 2021 | Luke Taylor, Subject Matter Expert at Luminance

The boom in M&A activity

The first six months of 2021 saw global M&A activity at an all-time high, with total deals in the period worth more than 2.6 trillion US dollars, compared to just 926 billion US dollars the year before. Indeed, Q3 of 2021 is the fifth consecutive quarter in which the global value of deals has exceeded 1 trillion US dollars. A run of this kind has not been seen since the 2007/8 financial crisis. Key factors that have spurred this boom in transactions include economic optimism, cash-rich investors, the progress of the vaccine rollout in key economies and the revival of cross-border transactions, which had dwindled significantly as a result of the COVID-19 pandemic.

The implication for lawyers

More M&A activity is of course good news for the bottom lines at law firms, but also brings with it a significant uptick in workload for lawyers, who now are responsible for vital legal due diligence exercises, typically involving the review of vast swathes of documents. Due diligence is a crucial part of any major transaction, preventing the parties involved from entering into an agreement that would put them at risk, such as evidence of non-compliance or outdated employment conditions. However, the sheer amount of data involved in M&A due diligence exercises is making them increasingly unfeasible for lawyers without resorting to sampling methods.

How AI enables rapid, thorough reviews

With M&A due diligence reviews often given extremely tight deadlines so as not to hold up overall transaction progress, lawyers are often placed in a challenging position, balancing the needs of efficiency and thoroughness. For this reason, many lawyers have chosen to embrace AI, which can expedite the due diligence process and allow them to ensure that no stone has been left unturned in their review.

Luminance’s next generation artificial intelligence reads and forms an understanding of an entire document set, picking out specific clauses, document types, governing laws and anomalies, and presents this information back to the lawyer broken down across a series of intuitive visual widgets.. Luminance highlights anomalies – these might be things such as differently-worded clauses or missing pages, as well as flagging the ‘unknown unknowns’, which are key aspects of the data set which the lawyer was not necessarily expecting, so did not know to look for. Presenting all of the critical information to the lawyer on day one of the review allows them to proceed with their review in a methodical fashion, prioritising the areas that require in-depth analysis. Further, being appraised of information early give lawyers a competitive advantage, as they are therefore able to request additional documents promptly, or even challenge the valuation of a deal.

With AI taking on the ‘grunt work’ of finding and labelling key information, lawyers have seen up to 90% time savings in document review exercises, allowing them to spend more time on high-level analysis and advice, providing the best possible service to their clients. To this end, Steve Cook, Senior Partner at ‘Magic Circle’ law firm, Slaughter & May, commented: ‘Luminance’s technology allows lawyers to be the trusted advisors they trained to become.’

AI in practice: a case study

In 2018, adopting Luminance’s AI aided leading international law firm, Bird & Bird, to complete a complex review of 80GB nearly 200,000 documents for a due diligence review within a very tight deadline. Using manual methods, they had typically been able to analyse 79 documents per hour. However, with Luminance’s machine learning-powered analysis, they found that they were able to analyse 3,600 documents per hour. As a result, a team of two associates were able to review the entire set of contracts relating to 20,000 employees in just two weeks despite this being the very first time that they had used the platform.

The importance of embracing technology

As the increase in volume and value of M&A transactions shows no sign of slowing, it is now more important than ever that lawyers adopt sophisticated AI to allow them to rapidly yet thoroughly review entire datasets and spend their time on valuable analysis to appraise their clients of risk. Luminance not only presents an innovative solution to the challenge of data overload, but even provides an opportunity for lawyers to gain a competitive advantage, which can translate into significant capital savings for their clients.