The Lucrative Days of Document Review are Over

Extract from article by Daniel Fish

Document review was just the beginning. In the past few years, corporate clients have shot dead another law-firm cash cow: the due diligence phase of a merger or acquisition.When one company decides to buy another, it won’t sign on the dotted line until its legal team has reviewed the other company’s slate of contracts. After all, it will have to honour each one once it takes over, so it’s a good idea to make sure they don’t contain any red flags.

The first step is labour intensive. The legal team goes through the contracts and pulls out the types of clauses most likely to cause trouble. To take a common example, they identify every “change of control” clause. These clauses set out what happens in the event of an acquisition. On occasion, they force the new owner to make a lump-sum payment to keep the contract active. Needless to say, this would affect the final price of the deal.

But the goal, at first, is not to analyze these clauses. It’s just to find them. Historically, high-billing associates did this work — yet another thing clients will no longer tolerate. Though the work is time-consuming, it doesn’t take any deep legal thought. Which is why outsourcing this work has become common.