Revolutionising M&A: The role of AI in streamlining transactions
Dr Peter Wagesreiter and Anastassia Dambrouskaya
by Dr Peter Wagesreiter and Anastassia Dambrouskaya
Mergers and acquisitions (M&A) transactions are among the most demanding and time-consuming processes in commercial law firms. They involve vetting financials and operations, contentious negotiations, integration planning, employee transitions, client discussions, and potential reorganisations, often dealing with IRS deadlines. These transactions can significantly impact the daily operations of small to medium-sized law firms for several weeks.
The rise of artificial intelligence (“AI”) has been a significant asset, saving attorneys countless hours and clients thousands of dollars. AI can optimise processes, reduce costs, and improve decision quality in M&A transactions. However, it is crucial to consider the potential ethical and legal concerns of using AI in view of ever-tightening data protection regulations.
This article provides an overview of how AI is utilised by attorneys in the North American and EU markets, along with some legal and ethical considerations.
1. Use of AI in the Midwest
Market trends are pushing attorneys and the law firms where they work to become more efficient, reduce costs, and speed up transaction handling. To remain competitive, the use of AI-powered tools is becoming essential. Nevertheless, attorneys must ensure their use of these tools aligns with the ethical guidelines set by the American Bar Association's (ABA) Model Rules of Professional Conduct (the “Model Rules”).
For instance, Model Rule 1.6 requires lawyers to make reasonable efforts to prevent unauthorised disclosure or access to client information. Therefore, attorneys should avoid using free AI platforms for processing private information. Instead, they should opt for platforms with strict data residency measures, SAML SSO, audit logs, and robust data storage tools to safeguard uploaded data and content.
Once in the AI database, AI can assist in contract analysis and management. By using natural language processing, AI can review and compare contract terms, ensuring compliance and highlighting any deviations from standard terms that might pose risks. This is especially valuable in large transactions with numerous contracts; however, human oversight is essential. ABA Resolution 112 urges courts and lawyers to address ethical and legal issues related to AI, including bias, explainability, transparency, ethical usage, and oversight of AI and its vendors. Users of AI should be prepared to evaluate any legal analysis or research what the AI platform has compiled for them prior to circulating material for a third party review.
As a practical example, AI technology can assist in routine tasks like redline summaries and due diligence reviews. These tasks can take a young associate hours to handle and, still, would require senior oversight. With AI, the above can be handled in a manner of seconds. This allows senior attorneys to focus on crafting client responses and strategic negotiations. The increased efficiency results in quicker work products, lower costs, and faster deal turnaround times, directly benefiting clients.
2. AI regulations in the EU
EU Member States' professional conduct rules impose duties of confidentiality and conscientiousness on attorneys using AI. Additionally, the EU AI Regulation, GDPR, and the European Convention for the Protection of Human Rights and Fundamental Freedoms (“ECHR”) provide relevant legal frameworks.
The AI Regulation, under Article 288(1) of the Treaty on the Functioning of the European Union, is binding and directly applicable in every EU Member State. It aims to create an effective regulatory framework for AI systems using a risk-based approach, primarily regulating AI systems based on the risks associated with automation. Companies and law firms must ensure AI systems used for processing personal data comply with GDPR requirements and data processing must be lawful, transparent, and purposeful to avoid severe penalties. While GDPR does not apply to legal entities, e.g. Austrian constitutional law protects company data with a legitimate interest in confidentiality, further supported by the ECHR. Restrictions on confidentiality are allowed only to protect another person's overriding legitimate interests therefore it is necessary to individually address the actual issues (e.g. machine learning with client data).
The GDPR governs the processing of personal data in the EU and, under certain conditions, outside the EU. The Austrian Data Protection Act applies to personal data processing in Austria, with the GDPR taking precedence for EU-wide processing. Employees, customers, and suppliers are comprehensively protected by data protection regulations, and their personal data must be handled with care.
Feeding personal data to AI tools can violate personal rights and freedoms. Notably, the GDPR's Article 17 provides the right to rectification and the right to deletion (Right to be Forgotten), allowing individuals to request data deletion. Companies using AI must ensure personal data is deleted or anonymised upon request, in compliance with the GDPR. The challenge remains whether companies and law firms can guarantee complete data deletion, given that AI tools often function as inscrutable black boxes that collect and store information to learn from it.
3. Conclusion
AI has become a valuable tool for analysing company data, but its use with sensitive and personal data introduces potential privacy and security challenges. These challenges must be managed both legislatively and at the corporate level. Proper AI tools can help address these issues, but they are not the only solution. Integrating AI into legal practices can enhance efficiency, accuracy, and strategic services for M&A clients, leading to more successful transactions. However, AI should not replace human judgment, and caution is advised.
Read the full version of this article here.
HSP Rechtsanwälte GmbH is an Austrian independent, full-service business law firm with a strong international focus. It covers a particularly wide range of legal services in the fields of private and public law, providing customised solutions for business and private clients.
Dr Peter Wagesreiter, LL.M. (UPenn), read law at the University of Vienna and the University of Pennsylvania. He also completed a research stay at Harvard University and is admitted to the New York Bar. Dr Peter Wagesreiter's areas of expertise include Banking & Finance, Corporate Governance & Compliance, Data Protection, Corporate Law and M&A. Contact Peter.
GGI member firmHSP Rechtsanwälte GmbHVienna, AustriaT: +43 1 533 0533
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Anastassia Dambrouskaya joined Sandberg Phoenix in 2018 and is a shareholder in the firm’s Business practice group. She is a member of the firm’s Corporate industry team. Anastassia specialises in mergers, acquisitions, and dental service organisation transactions. She is skilled at representing sellers partnering with DSOs and has successfully closed nearly 350 deals. Contact Anastassia.
