The benefits of artificial intelligence in data rooms How Legadex and Admincontrol accelerate M&A processes and mitigate risks
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artificial intelligence in data rooms
Introduction Artificial intelligence (AI) has been around for several decades, but it is in the last few years in particular that this technology, with its many real-world applications in almost every sector, has broken through. AI can analyse huge volumes of data and even fully automate some manual processes. And it does this very accurately, too, which significantly reduces the risk of errors compared with performing similar analyses manually. Many industrial environments use digital technology to a greater or lesser extent, and the legal world has already taken important digital steps. For example, virtual data rooms are now the norm to support mergers and acquisitions (M&A). Nevertheless, we still see a certain reluctance to employ innovative applications such as AI, even in sectors where technology is commonplace, such as M&A. Legadex – an innovative legal service provider – has long been convinced of the added value of AI technology for M&A. In a pilot, Legadex joined forces with Admincontrol, a developer and provider of smart technology such as board portals and data rooms. The idea: to examine how Luminance, a widely used AI platform for lawyers, can make work in a virtual data room smarter and, through it, speed up due diligence processes.
In this article you can read the key results of this pilot: •
how AI can support M&A processes
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the benefits experienced by the various parties in an M&A process
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future possibilities of AI in transactions
artificial intelligence in data rooms
What is the role of AI in M&A? Data rooms are perhaps the most widely used technological development in business transactions. Data rooms have proven their added value over and over, and it has become normal today – especially when it involves transactions – to collect and examine sensitive business information in a well-secured virtual data room. As a legal service provider, Legadex helps clients to analyse this data and gain insights that make the sale or merger of a company fast and efficient for all parties involved. The firm believes in the added value of AI applications and the Legadex team are constantly researching the available solutions to improve the information provision and work processes in M&A.
Secure and confidential As a concept, the data room may be well established, but in M&A, AI often turns out to be a step too far. In general, the legal sector is not an early adopter of innovative technologies. However Legadex and Admincontrol see that this is slowly changing and that AI is increasingly being used. It should be noted that – in view of the tight timelines in M&A projects – AI delivers a clear and demonstrable time saving. The points outlined above formed the basis for a pilot project by Legadex and Admincontrol. This aimed to bring together a data room platform, AI technology and the legal specialism of Legadex. The result of this collaboration was a successful pilot with results that were as positive as they were surprising.
Legadex is an innovative legal service provider with headquarters in Amsterdam. Legadex's successful formula combines tech-savvy lawyers with the application of innovative legal technologies. The M&A team assists clients in setting up data rooms, performing due diligence and delivering transaction management, such as supervising the Q&A. Admincontrol is, as a developer and provider of board portals and data rooms, a European market leader and 100% subsidiary of the Visma group. Both products, which are offered worldwide as cloud services, play a key role in the security and confidentiality of information. These are the central conditions for successfully completing M&A transactions. With its services, Admincontrol offers a platform that, in addition to security and confidentiality, provides structure and smoothly running processes.
artificial intelligence in data rooms
The M&A process from a legal perspective There is no doubt that virtual data rooms have made the due diligence processes a lot more efficient. The paperwork has largely been digitised and the integration with an AI platform now offers new possibilities to make the workflow even more efficient and to further improve the results of analyses. When you consider that an average of about 50,000 pages are stored in a data room, it quickly becomes clear that the use of technology can significantly lighten and accelerate the work. The legal aspects of an M&A work process generally consist of the following three steps:
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Data categorisation Often, gathering information is an unstructured process, with the information coming from different sources and different departments. The information involved also covers a broad spectrum, ranging from legal and tax documents
to financial and commercial contracts. In short, company information in the broadest sense of the word. To make a clear analysis, this information must be categorised in the data room. Contracts and other documents are moved to the correct folder so that the user can easily find and analyse whatever has been collected for the due diligence process.
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Information analysis The enormous volumes of data are then thoroughly analysed by lawyers. This process is accelerated significantly by the use of AI. For example, it takes just one click to check the expiry date of agreements. It is also possible to identify certain clauses, such as change of control. This gives quick insight into the possible risks for potential buyers.
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Insight sharing Following categorisation and AI analysis, Legadex shares its findings with the client to interpret them from a legal perspective and to explain any risks.
artificial intelligence in data rooms
AI in practice: the pilot The Legadex-Admincontrol pilot underlined Legadex’s previous positive experiences of using Luminance AI as an M&A data room tool. First, the integrated LuminanceAdmincontrol solution enabled Legadex to quickly analyse a large number of documents within the data room environment. It found relevant clauses such as change of control stipulations that required an agreement to be renegotiated should the ownership of the company change. The software extracted these types of clauses from documents quickly and effectively, even in different languages and when different wording was involved. Besides looking for specific clauses, the LuminanceAdmincontrol combination automatically captured other data points from the contracts, such as jurisdictions, languages, deadlines and expiry dates, deviations from standard templates and GDPR. The last of these is especially valuable as, in the context of GDPR, it is crucial to identify and anonymise a dataset before using it to ensure that no confidential personal data is visible in the data room. If it is not possible to work with anonymous data, Admincontrol offers a clean room – a protected environment within the data room that can only be accessed by authorised users. Admincontrol also provides reports that register who has access and editing rights. Using Luminance-Admincontrol created further benefits. For instance, the fact that Admincontrol had a direct link to Luminance meant Legadex could set up a visualisation dashboard to provide at-a-glance
insight into a complex set of data. And with AI having already analysed most of the dataset, the Legadex legal team could focus on analysing and reporting the legal findings, rather than manually reviewing every contract. The time and cost savings speak for themselves. Another benefit was that document upload was a onetime exercise. As for language issues, the Luminance software takes a language-agnostic approach. This allows Legadex's experts to train the software by running its algorithms on legal contracts and other relevant documentation in other languages. With AI, the more training, the better the result. Lastly, the data room integration of Admincontrol and Luminance makes it possible to select, very narrowly, what information in the data room folders should be analysed. This reduces analysis costs and makes the process even more efficient.
artificial intelligence in data rooms
artificial intelligence in data rooms
Application of AI in the future There will undoubtedly be more use cases for AI in the future. For example, we recently saw that Brexit had a huge impact on financial documentation. With a new benchmark set to replace them, all LIBOR clauses in contracts had to be identified. The use of AI made it possible to identify these types of contract provisions both quickly and accurately. Does AI have limitations as well? AI as a technology is still developing, so it is logical that its users sometimes run into challenges. In general, the maxim is that AI becomes more interesting as the amount of data increases and the system becomes self-learning. This means that for some small projects, it may be more logical to continue to do the work largely manually. In most cases though, the benefits of AI quickly become apparent. Even if AI can only analyse half of the documents in a data room, that still saves potentially hundreds of hours of time. Moreover, training AI platforms will make these solutions increasingly efficient and eventually generate new opportunities in the market.
artificial intelligence in data rooms
The benefits of AI in M&A processes AI can support M&A processes in a variety of ways: Cost-efficient and accessible
Shorter lead times
As mentioned earlier, the data rooms of Admincontrol are uniquely capable of enabling the user to determine very precisely what they want to analyse. The technical link between the Admincontrol data room and the Luminance AI platform makes it possible to analyse documents directly in their specific folders. This can be done very efficiently within the data room itself, without having to view the entire dataset manually.
Time can be an important factor in an acquisition or merger. Companies, for example, look to close a deal at the moment the circumstances look most favourable. Not only does the integration of a data room with an AI platform eliminate a lot of billable hours that would otherwise be spent on performing bulk analyses, but the entire process also has a shorter lead time thanks to this preparation.
AI does so with all the additional advantages that this entails, including cost, which is generally determined by the number of documents an AI platform needs to screen. Because Admincontrol can be used to indicate, very specifically, what is important, the analysis costs are reduced and time is saved because unnecessary information does not have to be filtered out manually afterwards. This lowers the threshold to starting with AI significantly.
Legadex's lawyers can also use this time to interpret their findings from a legal perspective and to minimise any risks that could get in the way of a successful conclusion to the project. Ensuring a transaction goes smoothly obviously has major advantages for all parties involved.
Without the ability to indicate and filter data, you could argue that it is more cost-efficient for some companies to continue doing the analysis themselves. With it, the barrier to outsourcing data analyses is much lower.
The third major benefit of AI is to help prevent incorrect or incomplete data from entering the data room. This is important for the deal process itself, but also to avoid potentially negative consequences once the transaction has been completed. For example, suppose you choose to give certain guarantees during an M&A procedure? You can then set AI loose on qualitative data and insights to ensure that the risks of giving that guarantee are limited.
Relevant data in the context of risk management
artificial intelligence in data rooms
Conclusion: smart data rooms are the future of M&A As in other applications, the possibilities offered by AI for M&A seem endless. In concrete terms, the technology speeds up and improves the due diligence process. During negotiations, a data room ensures that users have quick and targeted access to information, can conduct research and can ask or answer questions safely and securely to jointly complete a deal. The intelligent applications of AI support the process in the preparation phase, during the book search and after the transaction has been completed. Legadex benefits from the combination of a good data room platform plus highly advanced and secure integration with the Luminance AI platform to work more efficiently and to further manage and minimise risks. Moreover, the AI era has only just begun and software is gradually becoming smarter and more accurate.
In the long term, Legadex and Admincontrol even expect AI platforms in M&A processes to accurately predict whether a transaction will be successful. Or to indicate what needs to be done to make such a transaction successful. Admincontrol, which at any one time manages some 2,000 data rooms worldwide, follows technological developments closely and adapts its own data room roadmap accordingly.
artificial intelligence in data rooms
Choose a reliable partner AI will grow considerably in the coming years. Already, the technology can do many things without difficulty. Other tasks still require additional training and practical experience. However, perfection isn’t needed to benefit right now as AI not only saves a lot of time, but it also delivers much more accurate and relevant results. To access the best solutions, you need partners who have their fingers permanently on the AI pulse and who know how to make it work for you. Legadex does this by looking at the possibilities through a legal lens, while Admincontrol does the same from a software perspective, with efficiency, security and confidentiality as the paramount criteria.
Do you need help with your M&A processes? Or are you interested in Legadex’s services and Admincontrol’s data rooms? Contact us today.
Admincontrol
Legadex
Paolo Gambirasi
Morad Kada
paolo.gambirasi@admincontrol.com admincontrol.com/nl
mkada@legadex.com legadex.com