"The first thing we do, let's kill all the lawyers."1 More than 500 years later, and one of Shakespeare's most famous lines may become a reality, not literally of course, but evolving legal technologies and increasingly cost-conscious clients have created the perfect basis for the extinction of legal work as we know it.
The typical m&a transaction
m&a is certainly a hot area for legal tech due to its procedural aspects and the effort to reduce complexity. A typical m&a transaction can be divided into the due diligence phase and the preparation, negotiation and execution of transaction documents.
• In the due diligence phase, lawyers are confronted with a huge amount of data that needs to be reviewed to be able to detect and assess certain legal risks relating to the target company. Reviewing documents and extracting important information requires a high capacity of manpower, especially in the initial phase.
• The transaction documents, especially a share or asset purchase agreement and the closing documentation, must then be carefully drafted and be perfectly aligned with the findings of the due diligence review.
Use of legal tech
Legal tech does not mean that the whole m&a transaction can be completed by a machine. Currently, certain legal tech tools can be implemented in the m&a process to facilitate the lawyer's work and to enhance the outcome for the client with regard to both quality and cost.
With regard to the due diligence phase, various suppliers basically offer the same kind of tool: software using artificial intelligence ("AI")2 to review the disclosed data and flag certain documents or provisions (for example, change of control clauses, unusual liability provisions or contract expiration dates). AI can definitely speed up the process and reduce mistakes in such standard clauses. Suppliers of AI software claim, for example, that time spent on due diligence reviews can be reduced by 90 % or that 12,000 commercial contracts can be analysed in a few seconds (equivalent to 36,000 hours of legal work by lawyers) using AI software.3
To enhance the quality of transaction documents and to increase efficiency, Schoenherr has developed a contract drafting tool for Microsoft Word which, for example, automates the verification of references and can be used to implement standard clauses. The tool also imports boilerplates and manages them within your document. The implemented quality check feature helps to avoid typical mistakes when working with documents containing definitions.
While there are doubtlessly many advantages to using AI software in m&a transactions, there are also risks.
• Lawyers must increasingly deal with new technologies, since AI systems are always influenced by the data that they are trained on. Inadequate "teaching processes" can significantly reduce the impact and benefits of AI software.
• With increasingly rigid data protection provisions, data protection aspects must be borne in mind when processing large amounts of data using AI software.
• AI as software naturally carries the risk to be infringed in case of a cyber-attack. The IT security level both on the user and the company level must therefore always be up to date.
To remain competitive in the future, the use of legal tech is unavoidable. The more the performance of the actual work itself is automated, the more attention must be paid to the correct training and use of the AI software. This will be the decisive factor in how successfully the potential of AI can be applied. In any case, AI should be seen as only an auxiliary tool. Control and responsibility over the m&a process will always remain with the lawyer. It is not man vs machine, but man vs machine-assisted man.
1 Henry VI, Part 2, Act IV, Scene 2.
2 All current AI applications are in fact (just) machine learning applications.
This article was up to date as at the date of going to publishing on 10 December 2018.