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

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