23 Jan AI in M&A: a new approach to decision making.
Mergers and acquisitions (“M&A”) are complex processes that require careful evaluation and strategy to secure their success. Artificial intelligence (“AI”) is now playing an important role, innovating the way in which these transactions are carried out and providing useful tools for efficient decision making, process execution and risk reduction. The main focus of this article is to analyze how AI contributes to efficient, well-informed and less error-prone M&A procedures, as well as the role of lawyers in these deals through the application of such tools.
Broadly speaking, M&A refers to different ways in which companies grow, specialize or consolidate, “acquiring” or “separating” from another company through some mechanism or legal structure (i.e. direct or indirect purchase and sale, merger, spin-off, etc.). These operations are fundamental in the corporate sphere, as they allow companies to expand, diversify and improve their competitiveness.
AI, applied to this type of transactions, where an important component of the process deals with the analysis of huge amounts of information, document review, identification of potential risks, among others, is revolutionizing the way of executing them, through the development of new tools. Some examples of this are “Kira Systems” or “Luminance”, focused on the automation of document review; or “DealRoom”, specialized in the predictive analysis of risks and anticipation of financial problems; or “Intralinks”, which is used to review and structure large amounts of information to speed up its review, consultation and access.
By automating the analysis of large volumes of information, AI allows lawyers, advisors and people involved in these types of business to focus their efforts, time and work on tasks that involve the need for human participation, such as making strategic decisions for the project. This not only streamlines the transaction process, but also reduces the possibility of human error, lowers costs and improves risk management.
The Importance of Human Intervention as a Complement to AI
One of the main benefits of AI in M&A is its ability to perform predictive analytics. By using advanced algorithms and statistical models, AI can analyze historical data and market patterns to predict the success or failure of a transaction. This allows companies to make more informed decisions about whether or not to move forward with the M&A process.
However, one of the main challenges in implementing artificial intelligence in M&A is the presence of algorithmic biases. These can result when the information used to train AI models reflect historical predisposition or discriminatory patterns. For example, if a model is trained with input that represents certain groups or has historically favored certain types of companies, the results generated by the AI could be biased towards these inequalities. Not only could this lead to unfair decisions, but it can also negatively impact the reputation of the companies involved and competitiveness in the marketplace.
Human judgment, creativity and reasoning are also key elements in interpreting the results generated by AI, providing a level of adaptability that algorithms cannot achieve. While AI operates primarily on the basis of statistical data, lawyers, or parties involved, can incorporate external factors that enrich the analysis. These include contextual and strategic aspects, such as the relationships between parties or the particular needs of each. This ability to interpret beyond hard data allows lawyers to make adjustments and decisions tailored to the complexity of each M&A transaction. Without this human intervention, AI could offer limited or partial solutions, which do not reflect the true needs of the parties involved.
Additionally, human intervention is essential to warrant transparency in taking decisions. In the M&A context, where decisions affect multiple stakeholders, it is crucial that lawyers can explain and justify their conclusions, especially when based on AI-generated analysis. This transparency not only enhances trust in the process but also allows lawyers to substantiate their solutions in ways that all parties can understand and evaluate.
Another significant risk is AI’s limitation in situations involving direct negotiation. In M&A, setting terms often requires a deep understanding of the parties’ interests and needs, something AI cannot perceive in the same way as a human professional.
Lastly, over-reliance on AI could lead to choices that, while efficient, lack a broader perspective analyzed through reasoning. It is essential to maintain the perspective that M&As are inherently complex and cannot rely solely on an AI tool, rather it should be a complement.
Development in Informed Decision-Making
Another positive aspect of AI is its ability to optimize negotiations, as various tools analyze vast amounts of real-time data. With this, AI platforms can offer recommendations on negotiation strategies, facilitating decision-making and increasing the likelihood of reaching favorable agreements.
In the same way, AI supports informed and accurate decision-making in M&A deals by optimizing several key aspects of analysis and negotiation. As previously mentioned one of its main contributions is the ability to process large volumes of information quickly and efficiently, therefore, by analyzing data in real time, AI identifies market trends, assesses competitor performance and analyzes relevant economic conditions, resulting in a complete and more up-to-date picture.
Likewise, deep into an M&A process, during the due diligence and review stage, there are several AI tools that can make the process much more efficient through data analysis, in order to process much more information in much less time.
In addition, AI platforms can generate strategic recommendations based on predictive models and statistical analysis. These suggestions, such as negotiation strategies or evaluation of fair prices, increase the probability of reaching favorable agreements, minimizing risks associated with decisions by lacking information. This not only improves the accuracy of decisions, but also reduces the time needed to perform complex analysis that would otherwise require weeks of human labor. This course of action secures that the final decisions are not only accurate and data-driven but also contextualized and ethically responsible.
Importance of becoming familiar with the use of AI tools.
With the growing influence of artificial intelligence in virtually every industry, including in corporate and M&A transactions, it is essential that legal advisors adapt to this new technological landscape by acquiring skills that are already a must. AI is transforming the way transactions are conducted, and those who are not familiar with these tools run the risk of rendering their work scheme obsolete by not being updated in an increasingly competitive environment.
One of the first skills that lawyers should develop is familiarity with the various AI tools available on the market targeting their industry. This involves not only knowing how they work but also understanding their specific applications in a M&A process. Data analytics platforms, offer valuable insight into markets and competitors, as well as analyze information particular of a company with which it is already in a research and analysis or due diligence process.
In addition, it is crucial for lawyers to develop skills in interpreting AI-generated data. It is not enough to simply collect information; it’s required to know what that data means in a legal and business context. This requires an analytical mindset and the ability to translate technical information into practical recommendations for clients. The ability to interpret and contextualize the results can make the difference in efficient decision making during a transaction.
Training programs in emerging technologies and the use of AI must become an integral part of legal updating. As technology evolves, so will the tools and strategies available, which means that learning must be a continuous process. In this way, lawyers will not only keep up with industry trends but will also be able to provide a more comprehensive and effective service to their clients.
Conclusions.
In conclusion, several tools based on artificial intelligence technologies are currently emerging that have the potential to transform M&A procedures in any jurisdiction, by speeding up the analysis of large volumes of information, generating accurate recommendations, identifying and filtering key information for the process and, therefore, optimizing the timing of such processes. These tools allow more informed and strategic decisions, increasing the probability of success in these kind of deals. These tools present challenges such as algorithmic biases and the need for human intervention to interpret the results and adapt them to the legal and commercial context, so they can be seen more as a tool for the legal advisor, not as something that can replace the legal advice of professionals in the field.
To maximize its benefits, lawyers must integrate technology into their practice, train in its use and maintain a balance between automation and human judgment. AI does not replace professional expertise, but complements it, making decisions more efficient and accurate in an increasingly competitive environment.
Contact:
Rodrigo De la Torre Mariscal
Jorge Andrés González González
Edgar Rafael Sánchez Acosta