Firstly, legal professionals assisting businesses in an M&A transaction will be responsible for conducting a due diligence investigation into the company that its client wishes to acquire. Any legal professional guiding a client towards a successful and value-creating M&A deal will have to stress the importance of caveat emptor - the rule that the buyer should vigilant of what he buys. Lawyers will have to scrutinize every single part of the target company so that the client isn’t persuaded into buying an empty shell company. As M&A deals become increasingly complex, lawyers will have to investigate a multitude of documents and answer a wide range of legal questions on behalf of their clients. For example: is the target company’s intellectual property still valid and effectual? Or do IP rights need to be renewed in order for the target compony to remain profitable in the foreseeable future?  If the target company rents real estate such as brick-and-mortar stores, do those contracts need to be renewed or terminated in the interest of the acquirer?

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To provide an answer to all of these questions is incredibly time consuming. However, legal AI could drastically decrease the amount of time lawyers need to thoroughly conduct a due diligence investigation. Take LegalFly’s discovery feature for example. LegalFly has developed a way to leverage the power of AI in order to review a large number of contracts and answer specific legal questions with regards to any type of contract. Moreover, LegalFly’s AI tool enables a direct and comprehensive comparison between multiple contracts. Lawyers can use LegalFly’s AI Copilot to streamline legal research and ensure comprehensive and accurate analysis. LegalFly’s AI Copilot enables a lawyer to pose specific questions about urgent matters, such as an enquiry into whether the employees have executed invention assignment agreements.

A second problem that legal professionals are confronted with in M&A deals is the valuation of the target company. According to Bain & Company’s annual M&A report, 2023 was an increasingly difficult year when it comes to valuation. Two-thirds of buyers reported that differing valuation expectations had a negative impact on their ability to finalise the deal. How can lawyers assist their clients in the difficult task of valuating a target company? In order to evaluate, an acquirer has to be aware of the strengths and weaknesses of its target. Those can be of an economic nature, but clients tend to underestimate the importance of legal risks.

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Do the target company’s insurance contracts cover the potential liabilities of its business activities, or is the target company de facto uninsured? Are there any “change of control” clauses in contracts with the target company’s creditors, so that they could terminate the contract in the event of a takeover? The answer to these legal questions will greatly impact the bargaining power of acquirers when negotiating the valuation of the target company. In order to quickly establish a dominant position in share price negotiations, lawyers could harness the power of legal AI.

Lastly, a good law firm should be able to provide a clean exit for its client. Lawyers should be able to allocate contractual risks from the buyer to the seller. Important deal term considerations include whether the buyer will be strategic or financial, if the founders wish for a rollover, or post-closing investment into the acquirer, and whether a portion of the contractual clauses will be subject to certain future financial metrics. However, risks could not only be hidden in particular contractual clauses in the share purchase agreement, but could also spring from the interplay between multiple different clauses. The latter type of risk could remain hidden if lawyers do not thoroughly consider the contract as a whole.

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AI can analyse vast amounts of data and identify patterns and trends that might not be immediately apparent to humans. This information can help legal teams make informed decisions and propose multiple contractual amendments to its clients. Moreover, legal AI can explain the different impact of each version of the clause in a way that is both clear and precise. In this way, legal AI provides the means to tailor a share purchase agreement to the specific needs of an acquirer.

With the rise of the amount of M&A transactions and their increased economic importance, law firms should upscale if they want to meet keep meeting client’s demands. For M&A lawyers specifically, legal AI could prove an invaluable tool to be up to the task. Concretely, legal AI can be an asset for the acquirer in three distinct moments along the M&A process: firstly, legal AI warrants a thorough due diligence process; secondly, legal AI helps identify the arguments that an acquirer can make to bolster his position in the valuations negotiations; thirdly, legal AI ensures that the acquirer can insert the right and tailor-made clauses in the final share purchase agreement, thereby guaranteeing a clean exit for the acquirer.