2019 M&A Forecast - Digitisation is starting to impact value creation

There has been an influx of digital tools to M&A
activity, with many more soon to enter the market.

While AI is the poster child (and a focus of significant
investment), digital tools such as virtual data rooms,
eSigning, document automation and
deal/transaction management have been in use for
some time. These digital tools improve efficiency
when used effectively, and reduce deal times and
costs (or enable more activities for the same costs).

Tools like virtual data rooms (e.g. Ansarada and
Intralinks) and deal/management transaction
tools (e.g. Docyard) allow deals to be transacted
more smoothly, with less friction and reduced
email correspondence. They reduce the need for
document sharing on a linear basis and instead
allow for multiparty collaboration (with robust
security) and action tracking.

AI is a potential game changer. Early stage products
(such as Luminance, Kira and Ravn) aim to improve
document review. These products will dramatically
enhance the due diligence process and further
reduce legal risk. However the time taken to train
these “engines” can be lengthy.

MinterEllisonRuddWatts’ own JV entity,
McCarthyFinch, is developing product sets that
allow for more focussed review. This product will
have the ability to train the “engine” on a much
shorter timeframe so individual tasks can be
undertaken far more quickly.

Contract review using AI tools has the potential
to be more accurate than human review, with the
ability to review all of the contracts of a target
instead of sampling material contracts, in a fraction
of the time it took traditionally. Red flags can be
spotted much earlier in the transaction, providing
significantly better insights into the target.

The advantages of all these tools are:

  • reduced legal risk;
  • enhanced strategic negotiation and earlier
    decision making; and
  • assurance that the deal is the right fit, delivered
    at the right pace and price for the parties
    involved.

Digital disruption is expected to continue, but there are potential headwinds.

While the focus to date has been on improving
M&A transaction processes – using AI tools for due
diligence and deal flow tools for deal management
– digitisation will continue to evolve, particularly
around post-merger integration. Transitional
services can involve significant effort, cost and
time that can reduce the value of the deal for both
parties. Therefore using digital tools to streamline
transitional services will be beneficial.

Looking further into the future, there is significant
scope for AI tools to be used in day-to-day contract
analysis resulting in increased reliance on document
automation (i.e. using AI to anticipate needs
and suggest drafting tips, an area our own JV is
focussing on) and using smart contracts (e.g. on a
blockchain platform). This would further optimise
the operations of companies, replacing the need for
manual processes.

As to headwinds, there can be resistance within
law firms to embrace technology that disrupts
traditional legal work. The billable hour is still the
hallmark of the majority of legal services performed.
This will change as technology is adopted or
where firms are forced to change to keep up with
disruptors entering the market.

Products currently available are relatively immature.
AI tools (particularly those using deep learning) are
currently complex to use and require significant
training of both the user and the AI-engine. For
early adopters expecting instant results, this can be
frustrating. Anecdotal evidence suggests many firms
have signed up to headline legaltech tools only for
those tools to languish and be underutilised in the
New Zealand market.

 

Read the Full Merger and Acquisition Forecast

Who can help