Are AI tools actually being used in Canadian M&A due diligence?Sep 13, 2017by Jean Cumming Lexpert Magazine September 2017 Issue Tweet Judith McKay, Chief Client and Innovation Officer at McCarthy Tétrault LLP, says,“We are using AI tools to enhance our current M&A process at different levels in our work flow, including due diligence. AI allows us to more quickly and efficiently gather data on a target and perform advanced analysis. In the due diligence context, AI is increasing our ability to quickly and accurately put together and verify disclosure schedules and identify risks across a large data set.” David Kruse, partner at Blake, Cassels & Graydon LLP says that, as the academics suggest, “The sweet spot is large deals involving contract-intensive targets. Cost-effectiveness will be optimized using AI when there are a large number of contracts to be reviewed for standard considerations, such as term, assignability and change-of-control consents. For example, due diligence on a target business with a large portfolio of leased real estate would present an opportunity to achieve cost-effectiveness.” McKay continues, “One good example where AI is particularly useful is if a client is considering structuring an internal reorganization. We can very quickly look at all of their contracts with third parties and determine which ones may be affected by the transaction.” New innovations around AI seem to be coming up all the time, and these Canadian innovators in the field do not sound afraid of the future (as others arguably do, see article). According to Natalie Munroe, Head, Osler Works — Transactional, within Osler, Hoskin & Harcourt LLP, “We have a team at OWT who are in the market every day looking at new ways of deploying smart technology. That is our job: to be creative and curious in scanning the landscape for new ways of doing things. We are working collaboratively and intensively with our preferred vendors in order to customize new solutions for clients.” That said, law firms are very security-conscious. Kruse says: “We are eager to find innovative and efficient solutions but cannot do so at the expense of quality or data security. Data security is one area that is a particular challenge. The start-ups developing AI tools have not always focused on security enough in their early stages to allow large law firms and clients to be comfortable.” Munroe nods to the new lawyer and to new tech: “The creative use of technology is the new stock in trade for a lawyer. Technology pre-packaged without smart users and engaged clients is not a sustainable model and not the way we work at Osler. The weakness in these sophisticated technologies is that they are not the ‘plug and play’ automated solution some expect them to be. Knowledge of the software and how to apply it is key. … The software augments the legal expertise, but at this stage, it cannot replace the legal judgment that must be applied to complex issues.” Adds McKay, “The tools are fairly new and still being refined for use in the due diligence context. We are engaged in constant dialogue to help shape these tools for our purposes. It is an exciting time to work with them, but it is still early stages and they are not without growing pains.” On the plus side for Canadian lawyers, as Kruse points out, “many of these tools are being developed in the Toronto/Waterloo tech hubs. It is an added benefit to use innovative tools developed locally. This allows us to speak directly with the innovators to help shape the product to suit the needs of our clients.” This includes the Thomson Reuters Labs in Communitech, which works closely with the University of Waterloo (Thomson Reuters publishes Lexpert).