How AI is Changing M&A Due Diligence

Merger and acquisition (M&A) costs are substantial and typically range between 1% to 4% of the deal size. Businesses that go down the M&A transaction path have a lot at stake and need to ensure the provided financial information, agreements, taxes, and regulatory compliance, to name a few, are verified by experts and that any material risks are identified. This assurance is completed through an extensive list of due diligence activities that are completed before the ultimate deal closes and a definitive agreement is executed.

The costs associated with M&A due diligence can vary significantly. This ranges from tens of thousands to hundreds of millions of dollars. The cost ultimately reflects the intricate and exhaustive nature of the due diligence process– reviewing all material agreements, financial statements, tax returns, government compliance, and reporting to ensure the investment being acquired is fully vetted, and all risks are identified and evaluated. 

If you’ve ever been involved in an M&A transaction, you know the time, money, and sweat equity they require are hard to describe without experiencing it. Understandably, the search for a more efficient and cost-effective way to manage due diligence has been something all groups involved in M&A are interested in. AI offers the potential to reduce the time and cost associated with M&A due diligence while increasing the quality of the output.

An Introduction to AI for M&A Due Diligence

Artificial Intelligence (AI) is rapidly transforming the world of corporate finance and M&A due diligence from a time-consuming and costly process to one that is more streamlined and efficient.

This article will explore how AI offers opportunities to streamline due diligence activities such as legal and financial review, as we quickly identify risks and potential risk areas gleaned from the efficient review of the extensive list of material documents and agreements. While AI introduces remarkable efficiencies, we also highlight some limitations underscoring the enduring importance of human intuition.

How AI is Changing M&A Due Diligence

The activities where AI can clearly help make M&A due diligence activities more efficient and effective aren’t limited to this one area of corporate finance but related areas. Fundamentally, AI can optimize any activity or process that would benefit from:

  • The automation of mundane, repetitive tasks like document reviews, data analysis, financial consolidation software, or transactions based on predetermined parameters
  • Identifying critical issues and material risks by reviewing extensive legal documents more quickly and accurately than manual reviews.

A Glimpse at Traditional Due Diligence

Mergers and Acquisitions (M&A) represent a significant strategic move for companies looking to expand their operations, enter new markets, or acquire valuable assets. The due diligence process sees experts assess the potential risks and rewards of an acquisition in minute detail. Validating the accuracy of provided information is central to the success of any M&A transaction.

Historically, as noted above, this process is typically time-consuming, complex, and costly taking at least 60 days.

Duration and depth

However, due diligence in M&A transactions might stretch to months. The very nature of this process demands a deep dive into vast repositories of information.

Every facet requires meticulous examination, including:

  • Assessing a company’s assets and liabilities;
  • Scrutinizing its contracts;
  • Understanding its market position; and,
  • Evaluating its intellectual property.

Each evaluation area, whether operational, technological, environmental, or cultural, compounds the time it takes to complete.

This extended timeframe isn’t just about the volume of information but also its accessibility. Companies may store a large part of the required information in physical formats, which require manual reviews. Finding specific contracts, reading handwritten notes, or validating financial records often becomes a time-consuming task.

The cost implication

The length of the process has a direct correlation with its associated costs. Each additional day spent in due diligence translated into billable hours for subject matter experts, attorneys, accountants, and consultants. Moreover, the longer the process takes, the more likely market conditions could change, potentially affecting the valuation and terms of the deal.

Unfortunately, the entire due diligence process is often wrought with anxiety and uncertainty for the parties involved.

Multi-faceted Evaluations: Where Time Meets Complexity

When we look closer at the various dimensions involved in traditional due diligence, it’s easy to understand what makes it such an overwhelming undertaking.

Legal evaluation

This involves reviewing all contracts, licenses, and litigation histories. Any potential legal entanglements or lapses in regulatory compliance can result in substantial future liabilities—hence the exhaustive scrutiny.

Financial evaluation

Financial due diligence goes beyond just looking at the financial statements.

It also involves:

  • Dissecting past financial performance
  • Understanding revenue streams
  • Analyzing debts
  • Forecasting future performance

Operational evaluation

Here, the day-to-day workings of the company are assessed. Everything from supply chains to human resources, IT infrastructure, and customer relationships is put under the microscope.

Cultural and strategic evaluation

This often-overlooked area can be crucial, especially in mergers. Understanding the company culture, leadership styles, and strategic fit can determine the post-merger success of the integrated entity.

The Pain Points of Traditional M&A Due Diligence

For acquiring companies, the drawn-out due diligence process presents multiple challenges. There is the direct financial strain, of course. But there are also opportunity costs: the time and resources allocated to one potential acquisition can’t be used for other strategic initiatives.

Additionally, a protracted due diligence phase can lead to uncertainties, with both parties left in limbo and the possibility of external factors jeopardizing the deal.

While the historical due diligence process in M&A transactions is undeniably thorough, it is fraught with inefficiencies, costs, and uncertainties. As companies seek ways to streamline and optimize, the stage has been set for technological interventions like AI to usher in a new era of due diligence.

AI to the Rescue: Its Role in M&A Due Diligence

We’ve explored the many pain points that come with traditional M&A due diligence. Now, it’s time to dive deeper into exactly how AI is helping the process.

While there are many areas AI can benefit this drawn out process, three stand out.

1.    Legal: reducing document review time

During due diligence, one of the biggest challenges legal teams face is the sheer number of hours (often thousands) devoted to reviewing and analyzing documents. This time-consuming process can be daunting and can lead to delays in completing important tasks.

However, with the help of AI tools, legal teams can now significantly reduce the time spent on this process while ensuring accuracy and consistency. These advanced tools utilize machine learning algorithms to:

  • Quickly and efficiently analyze documents
  • Identify relevant information
  • Extract key insights

Thanks to the powers of automation, legal professionals can focus their time and energy on higher-leverage activities–strategic decision-making and client engagement, to name a few. This improves overall efficiency, enhances the quality of work, and enables legal teams to deliver better outcomes for their clients.

2.    Financial analysis: boosting efficiency and accuracy

Another area where AI is playing a starring role in M&A due diligence is financial analysis. This process involves reviewing various documents, such as financial statements, to gain insights into the target company’s performance and operations.

AI tools can significantly streamline this process. They automatically extract relevant data from documents. Then, they create detailed reports with visualizations that highlight key trends or areas of focus. This helps financial analysts quickly identify potential issues or risks to address. It can also provide valuable insights into the target company’s operations.

Moreover, these tools can run complex calculations and simulations in a fraction of the time it would take a human analyst. This increases efficiency and eliminates errors due to manual calculations, resulting in a more accurate and reliable assessment of the target company.

3.    Analyzing track records and online presence

Finally, companies can also use AI to analyze a target company’s track record and online presence. This involves combing through large amounts of data to gain insights into the company’s history and reputation.

Often, this includes:

  • Legal documents
  • News articles
  • Social media posts

AI-powered tools quickly scan all this information and identify key patterns or anomalies that one might have overlooked otherwise. This assists legal teams in gaining a clearer understanding of the target company’s past performance and online reputation, as well as pinpointing any potential risks or issues that they need to address.

Limitations of AI for M&A Due Diligence

While AI offers numerous benefits, such as increased efficiency and accuracy, it is important to acknowledge its limitations. Despite its advanced capabilities, AI may struggle with fully grasping cultural nuances or understanding complex strategic implications, where human intuition and expertise are invaluable.

Moreover, AI-powered tools rely on the data they are fed; if it is incomplete or of poor quality, the results will also be inaccurate. Therefore, financial analysts should always verify the output of their AI tools to ensure accuracy before making any decisions or taking any action.

We also talk about how AI can help with regulatory compliance here.


The use of AI in M&A due diligence is set to disrupt the length of time it takes to review, validate, and identify risks from the review of the extensive list of financial, legal, and other agreements and documents. Not only that, the analysis will be more thorough and free from human error.

Frequently Asked Questions (FAQs)

Any lingering questions? Browse these FAQs for the answers you’re looking for.

How does AI affect M&A transactions?

AI introduces efficiency, accuracy, and speed into M&A transactions, transforming them into cost-effective ventures.

Can due diligence be automated?

Although not entirely, many data-intensive tasks in due diligence, especially in financial and legal spheres, can be significantly automated with AI.

How AI and advanced analytics have begun transforming M&As?

AI and analytics offer deep insights, automation of tasks, and predictive capabilities, heralding a new era in M&As.

What is the AI technical diligence process?

It focuses on evaluating the technical viability, risks, and capabilities of AI models and algorithms in alignment with the strategic goals of an M&A transaction.

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