Artificial intelligence (AI) is an essential tool for deal-making, with rapid developments in large language models (LLMs) providing an efficient way to analyze volumes of documents quickly.

Buyers are leveraging AI tools to assess the risk and compliance of a target company during the sourcing and regulatory due diligence processes. AI tools can help with contract analysis, parsing policy and procedure, assessing financial documents, and driving efficiency to support thorough risk and compliance assessments. 

How LLMs and AI can expedite risk and compliance assessments in M&A

AI tools are essential for thorough and effective risk and compliance assessments. Traditional artificial intelligence and large language models both have an important role to play in assisting legal professionals and buyers to understand the risk and compliance status of a potential target company. 

So, how can teams deliver competitively while keeping costs down and meeting expectations to deliver deeper insights for M&A? Let’s take a closer look.

Bulk AI redaction

Document redaction is essential to minimize any risk of disclosing sensitive IP or PII information to third parties viewing contracts and other documents that are shared during due diligence. Redacting documents rapidly with AI streamlines this process so legal teams can focus on higher-value tasks.

Ansarada’s built-in AI redaction tool begins scanning documents as soon as they are uploaded to the virtual data room and suggests phrases for redaction. With the ability to redact up to 500 documents at once using over 30 customizable search terms, AI-redaction reduces the risk of a manual process missing sensitive information.

Rapid document review

Manual document review is time-consuming; however, using dedicated tools, legal teams can rapidly review documents for risk with AI that identifies non-standard clauses or anomalies. This enables teams to review all documents, not just a sample. 

For example, two teams working side-by-side on an M&A transaction, one undertaking manual review and the other assisted by a legal-grade AI tool, found that the AI-assisted team worked more quickly and found issues the manual review team missed. 

With an AI tool built specifically for legal teams, documents can be analyzed using semantic similarities to find ‘unknown unknowns’.With Ansarada’s secure virtual data room, you can benefit from all of our AI features, with the option to add legal AI tool subscriptions like Luminance to support your legal team’s due diligence.

Financial document and contract analysis

Analyzing contracts with AI can rapidly surface crucial information like clauses, standards, deviations and anomalies. Legal and financial documents typically have a precise and logical structure, using standardized language. 

AI-powered software can search for critical clauses in these documents, such as “change-of-control” and “non-compete” in the documents, with oversight by teams who can focus on reviewing contracts that indicate risk more closely. 

During the due diligence process AI tools can support a thorough review, noting where one document, such as an annual report, indicates that supporting documents should exist. For example, if the annual report mentions that a real estate property was sold in FY2024, the AI tool can check whether documentation relating to the sale is available, including that the sale appears in financial and tax statements. 

Using AI reduces the likelihood that any anomalies will be missed during financial due diligence.

Translate key documents in cross-border M&A

For cross-border M&A, due diligence documents may appear in different languages — with AI translation inside the data room, these documents can be quickly and easily readable and understood. This allows teams to focus on the compliance and risk differences across jurisdictions and removes the need for costly translation, which risks breaching confidentiality.

Assessing regulatory gaps and risks

Dedicated AI tools can assess contracts, policies and board minutes to identify risks, gaps or non-compliance. By analyzing governance documentation alongside company policy, legislation and corporate rulebooks, AI tools can help to identify and flag non-compliance. 

For example, if a target company has paid a dividend without deducting withholding tax, AI may identify that there are no related tax forms available in the due diligence documents supplied inside the virtual data room. 

Another example is board documentation. If board resolutions do not comply with the corporate rules in a particular financial year, this can be identified and flagged during due diligence. 

Wondering where to begin with regulatory due diligence? Ansarada’s Regulatory Due Diligence Checklist draws on data from thousands of deals to create a streamlined questionnaire that accelerates the process.

Data management and analytics 

Keeping all information in a single workflow and platform can greatly reduce the likelihood of missing an important update in an email, spreadsheet or document. With a consolidated, centralized workflow, every member of the team is assigned tasks and there’s full visibility over the status at any given point in time. 

Using a central data management tool allows risk and compliance systems to follow an orderly process. Silos are removed and documents are stored securely. Workflows can be customized to align with the required outcomes and the team’s unique way of working. Documents can be automatically sorted into an orderly fashion, allowing a thorough and systematic review. 

Central deal workflows enable collaboration between internal and external parties, with tracking of key milestones, dates, team engagement and priorities. Using a centralized data room allows a full audit trail, including user activity and the Q&A process. 

By setting up reports on activity, the risk and compliance review process can be monitored and tracked accurately. Teams can make informed decisions about where to focus next with analytics and reporting.

Smart contracts to mitigate process risk

Risk and compliance assessments require sharing of sensitive and confidential information — so there must be both cybersecurity and contractual confidentiality in place. Inside a virtual data room, the target company can automate sending of non-disclosure agreements and process letters, ensuring that sensitive information is protected before sharing, 

A virtual data room prevents the risk of sharing sensitive information through risky drives or even email. With end-to-end encryption in the cloud, secure file sharing ensures that information is kept safe.

Intelligent suggestions and recommendations

AI tools can identify gaps in existing documentation and guide compliance teams on the additional information to request in Q&A to satisfy risk and compliance assessments. Missing information can be surfaced, or a risky acquisition can be avoided.

A compliance and risk assessment may include recommendations to support a successful post-merger integration. LLMs can assist with suggesting what steps the acquirer should prioritize to ensure continuity of compliance or risk mitigation for the future combined company. 

Reduce risk in M&A by powering risk and compliance assessments with purpose-built AI tools

During the due diligence process, time is often limited. To deliver timely yet comprehensive risk and compliance assessments, using AI tools is no longer optional, it’s expected and essential. 

Ensure that every risk and compliance assessment is thorough, using a centralized virtual data room with AI features that help to streamline the workflow, provide full visibility and transparency of the process. 

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