This week, I share an open-source AI model that simulates an M&A negotiation.
AI will change the world, but how will it change M&A? I want to focus on AI’s impact on M&A in this newsletter. I am not an expert on either M&A or AI, but I want to learn about both topics and how they intersect. I thought there might be others in my situation (or people who are experts in one field or the other) who would find information on M&A and AI helpful in their careers, so I created this newsletter to track and share what I learn.
AI M&A Negotiation Simulator Model
Stanford legal AI researchers and a tech-forward law firm in New York released an open-source AI model that simulates M&A negotiations. The goal of the project is to assist firms in developing M&A lawyers’ negotiating skills in a low-risk manner. The user represents the buyer and can chat with the AI model who represents the seller. The negotiations take place before the LOI and are not based on any one document or confidential information.
The Scenario
Here is the scenario: The buyer, ShopMaster, operates retail stores. The seller, TechEase, developed a new SaaS (“software as a service”) tool that assists in customer point of sale interactions. The deal is structured as an equity purchase where ShopMaster will own 100% of TechEase. TechEase recently suffered a cybersecurity breach, exposing it to significant liability.
The Negotiator’s Goal
The negotiator’s goal is to negotiate a resolution to the issues presented by the negotiation. The issues that need to be resolved depend on the level the user selects. There are three levels to choose from: junior, senior, and partner.
The junior level focuses solely on negotiating the special representations and warranties related to the cybersecurity incident.
The senior level also focuses on the representations and warranties, but it adds a twist with the introduction of a cybersecurity incident that occurs during the negotiations that the parties must consider in their discussions.
The partner level involves negotiating the deal structure and adds multiple cybersecurity breaches to the mix.
How the Negotiation Works
The negotiation takes place in a text box. The scenario is silent whether the negotiation is via email or phone call. The user can input any text into the box to begin the negotiation. The negotiations are long—the number of open issues ranges from around five to ten depending on the complexity. I have done five negotiations and each took about an hour to an hour and a half. I plan on sharing an example of a negotiation in a future post.
Performance
From someone who has never participated in an M&A negotiation, I think the AI’s performance is pretty good! The model is trained to create a “belief, desire, intention” response to the negotiator’s inputs. According to the model’s creators, the belief, desire, intention method focuses the model’s responses and improves its outputs.
I am probably not qualified to speak on the substantive accuracy of the model’s knowledge of M&A, but it seems like the scenario and the model are set up as a realistic negotiation that might take place in a given deal. There is no mention of representation and warranty insurance, something that I know is pervasive in private M&A deals. Perhaps this is an additional layer of complexity not suitable for the model.
There are some aspects of negotiating with an AI bot that are not very realistic. For one, the AI bot does not have emotions, so it does not give emotionally charged responses that may occur during a tense negotiation. Additionally, I think some of the responses are predictable and not realistic. For example, in one of my negotiations, I purposefully took an extreme position and refused to budge on any proposals the model suggested. In real life, I suspect that such a strategy would not work as well as it did with the AI model.
Conclusion
Overall, I think this is a great idea and I am excited to see how it develops over time. I think there is a use case for an AI model such as this one in a large firm environment to provide young lawyers with a risk-free training ground to improve their substantive knowledge of M&A and their negotiating skills. I will share a couple of examples of negotiations in the coming weeks!
About me
My name is Parker Lawter, and I am a law student pursuing a career as an M&A lawyer. I am in my last semester of law school, and with some extra time on my hands, I decided to create this newsletter. I hope it is informative and helpful to anyone who reads it! I am not an expert at either M&A or AI, but I am actively pursuing knowledge in both areas, and this newsletter is a part of that pursuit. I hope you’ll join me!
Follow me on LinkedIn: www.linkedin.com/in/parker-w-lawter-58a6a41b
All views expressed are my own!