What Lawyers Really Do During Due Diligence

In this insightful episode of The Dealist, we sit down with Peter Emmi, a partner at Reed Smith based in New York City and a legal expert with a deep technical background, including a 17-year career as an engineer, researcher and dealmaker on the legal team at IBM.

Peter discusses the role lawyers play during the due diligence process in mergers and acquisitions (M&A), particularly as it relates to rapidly evolving technologies. 

Reflecting on the collaborative nature of successful transactions, he shares a guiding principle: "[M&A] is supposed to be a win-win, and that's the way we try to approach it."

Listen to hear Peter's insights on: 

• The highs and lows of performing diligence
• Engaging directly with technical experts to unpeel the onion of a target’s operations
• Best practices for using AI
• The importance of emotional intelligence
• Plus, hear a diligence war story you won't believe

Host: Catherine Ford                                                                            

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Further reading

The Dynamics of Due Diligence, a report produced in association with Mergermarket and The M&A Research Centre (MARC) that explores the reasons behind the ever-expanding due diligence period in the past decade and reveals why those deals that have a “medium” duration in terms of timing are the most likely to succeed. Download here.

“The Impact of Artificial Intelligence on M&A Deals—Part I” by Peter Emmi, published in The Journal of Robotics, Artificial Intelligence & Law (Volume 8, No. 2; March-April 2025), can be found here. 

Discover how Intralinks DealCentre™ revolutionizes deal management with cutting-edge AI technology and smart solutions here. 

Transcript

CATHERINE FORD: Welcome to The Dealist, your insider's guide to navigating the complex world of M&A. I'm Catherine Ford, your host for the show, and I have been speaking with Peter Emi, partner at Reed Smith. Peter and I had a lovely time chatting about what lawyers really do in an M&A process. So, without further ado, hear my conversation with Peter. So hi, Peter. Thank you so much for joining me today on this podcast. I'm delighted to have you here as my guest. Maybe we could set the scene a little by you telling us about your practice, who you work for, and the clients that you're servicing at the moment.

PETER EMMI: Thank you, Catherine. So, my name is Peter Emmy and I'm a partner at Reed Smith in the New York office. I focus on technology transactions. I have a background in some patent and trade secret litigation as well as patent prosecution or patent attorney as well. And I had a prior career for 17 years at IBM as an engineer and researcher and eventually in the legal department doing different types of deals for IBM.

CATHERINE FORD: So, a really strong tech background there. Let's jump straight in. We're thinking about sort of diligence and what lawyers actually do when it comes to due diligence in an M&A transaction. Talk to me about the highs and lows in your workday. What are the sort of the things that get you really excited in the morning when it comes to going to the office? Let's start with the highs before we dig into the lows.

PETER EMMI: Highs are when we get new deals that are tech-focused and have very high tech components. I prefer to work on software deals and electronics, specifically the semiconductor area. Those are the types of things that really interest me so I'm very focused on working on those deals. I also work on all types of intellectual property, technology deals, across industry, agnostic. At different times, there'll be more work in, for instance, in the health tech base. The other times, especially now, there's more focus on AI in general across the board, all types of applications.

CATHERINE FORD: And obviously, those are sectors that have been incredibly active over the last couple of years. They've also become much, much more complex. Has that affected your work, the enjoyment that you have on the work? Do you relish that additional challenge that we're seeing in that space at the moment?

PETER EMMI: Yeah, of course. In the AI space, I had done some work in early implementations of AI, machine learning. I'm waiting for this basically to evolve, to talk to different colleagues in the industry on the technical side. And there was a lot of chatter in the past about the advent of AI, especially the generative of AI in the next phase. So very, very excited to see that.

CATHERINE FORD: And do you feel that given your technical background, that gives you a bit of an edge when doing transactions in that particular space? Just the fact that you actually understand and you've gotten a sort of knowledge of the technology that's behind some of those transactions?

PETER EMMI: Yeah, I think it helps a great deal because I can assimilate the information much more quickly. I can ask the right questions of researchers. I'm not only limited to talking to attorneys or some of the higher-level business people. Sometimes I'll ask this head to talk to the head of research and I'll actually understand what's going on and get a better feeling. It helps me unpeel the onion in the diligence process, so to speak.

CATHERINE FORD: I can imagine. Talk to me about some of the low points, things where you say, do you know what? That has actually gotten more difficult, more unpleasant to deal with over the last couple of years.

PETER EMMI: I think because the technology has gotten so advanced, what I find is in some cases, for instance, if I have a private equity client that's trying to acquire a target in the software space, that the target will be less willing to give us correct information because they think, oh, it's so advanced that we're not going to understand what's happening anyway and it won't affect what's going on. um so we'll have to ask the same question in several different way uh to get to get the answers in then in some cases uh we will get a direct answer and we'll have to piece it together from from other things that uncover uh which is a little uncomfortable right because then you know we don't want to challenge and say oh I know you're holding back information or you're lying or whatever uh but uh but at the same time we really understand the information not you

PETER EMMI: know not uh not to take on unnecessary risks after the deals closed and so on.

CATHERINE FORD: Does that sort of perceived imbalance between knowledge, does that make it difficult to create trust in the transaction?

PETER EMMI: Yeah, I mean, we understand, you know, it's not super adversarial, right, in the M&A context, because it's supposed to be a win-win, and that's the way we try to approach it.

PETER EMMI: As opposed to, you know, a litigation regime which I've participated in. so Yeah, I mean in some cases, you know the team will get a general feeling after after a very short while whether the targets cooperating or not and that that'll sort of Inform, you know, how much independent research we do how much how many assumptions we make and so on so forth so so it's a little bit of a give or take you know to try to figure out how to approach the you know the review in the first instance and then we figure it out and

CATHERINE FORD: Do you think diligence has become more difficult?

PETER EMMI: I think in the tech space it has, right? Because the technology is so advanced. It used to be that the tech space was pretty laid out. Even for those who were non-technical, at least the state of the technology was such that it wasn't hard to sort of dig into the use of what was going on. But now there are a lot of different factors, and especially the advent of Big Data that’s being pulled from all over the world and all different places that that's that's become a little bit more different with trace and two villages

CATHERINE FORD: Okay. Obviously, the overarching theme of the first season of the D-list is diligence. I'd like to find out a little more from you how legal teams are actually approaching the process of diligence. Where do they focus their attention on? Who else do they need to work with during the transaction? Let's start at the beginning. Where do you start?

PETER EMMI: So in the beginning of the deal, we'd do a high level review of what the target's business is, right? So I'd personally do some outside research to try to figure out what space they're in, what they're saying in the marketplace, what some of the initial documents say. I could do a quick review of what's in the data room at the front end, which is usually just high level stuff or very little information. And then we try to break up the diligence into different specialist areas. So for instance, I'm in the tech transactions areas. I'll focus on IP, IT, cybersecurity, and in a lot of cases privacy aspects of the deal as well.

PETER EMMI: But we need regulatory folks in many cases. We need tax attorneys. So there are a varied number of specialties that are formed by the initial research we do to try to figure out what areas need to be diligence.

CATHERINE FORD: And at what stage do you say, okay, this is an area that we need to spend a huge amount of time on. And this is actually something that we don't need to spend so much time on. One of the themes that's come out of the podcast series is that due diligence now has to take into account so many more buckets of information. There is a plethora of data that is available for anyone doing due diligence, making it much more tricky to actually make a decision. This is something that we need to take a closer look at because it's going to affect the bottom line of the transaction.

CATHERINE FORD: And this is something, well, it's nice to know about it, but it's not actually going to affect the bottom line of the transaction. And therefore, we don't need to pay that much attention to it. Where do you draw that line?

PETER EMMI: Yeah, in fact, that the the reason why it's becoming uh... more difficult is because that line is being drawn later and later in the process closer to the time uh... at which they want sign the contracts for doing a simultaneous signing closing so the stakes are much higher as you go further into the process because both sides have spent you know money in time and energy in trying to get the deal closed and so it’s the long the longer you go you know the expectation is uh... higher that it's going to actually get signed and closed.

PETER EMMI: So, at the last minute, finding things and raising them and saying we need additional information or additional time becomes quite painful for both parties. And sometimes there are time limitations that affect tax implications or the financial implications of the deals. And so those get quite stressful and tense.

CATHERINE FORD: Can you tell me who you work with within the organization or within the target company? I mean, are there sort of specific teams that you spend an awful lot of time talking to? Are there some that you spend less time talking to? Are there some that you don't need to get in touch with at all?

PETER EMMI: Yeah, I mean, I try to, as I alluded to earlier, I try to get in touch with the technical specialists. And sometimes the CTO is not the right person. They really don't know what the technology is. In a lot of cases, in high technology companies, they are the right person. They're in the group of people that, for instance, developed the initial set of software, set up the structure of the technical nature of the business and so on and so forth. So, you have to find the right people. So sometimes it's either the CTO or it could be the head researcher or it could be a researcher on the line.

PETER EMMI: I had a biotechnology company one time where I found that one of the researchers, you know, middle-level researchers in the lab was the person, the right person to talk to, but it took some time to get to that conclusion.

CATHERINE FORD: But Peter, as you mentioned, there is a caveat to that statement that sometimes you need to find someone lower down the food chain, so to speak, who can give you that insight. Can you give us that caveat, please?

PETER EMMI: Yeah, and some deals, there's a clean team. So, you can only talk to those folks in the organization because they don't want the information to leak and they want to keep it to a very small circle of people. And in those cases, you'd be the best you can. And you look for outside sources and try to figure out.

CATHERINE FORD: And the privacy presents its own set of challenges as well.

PETER EMMI: Yes, that's right.

CATHERINE FORD: Yeah.

PETER EMMI: So it becomes a little more challenging in those situations. But you know, see, so maybe you try to look for outside information that, you know, without divulging what's going on. But you have to be very careful.

CATHERINE FORD: Yeah, I can imagine. I can imagine. Talk to me then about how the use of AI has changed your day-to-day business. So what are things that you used to do that you can now outsource to AI? Or is it just something where AI is functioning almost like a gatekeeper in that it reduces your workload, but you still have to go over it, but you can give more time and dedication to those 600 documents, say, rather than taking the 10,000 and going through all of those?

PETER EMMI: Right, so there's two facets of it. So there's the one you just mentioned where even though I have a team of associates looking at documents, I can go in with AI, do a quick search, call that search, spot check, and I can get a feeling for what's in the pool of documents without having talked to any of the associates before I make conclusions. So I can get a quick feel for what's in there. So when I get the results back from the team, I can say, well, that doesn't make sense from what I've seen or does, and I can make that determination much more quickly.

PETER EMMI: On the other side of things, what I can do with the front of the deal is I can use AI to In an idea of what the target has put out into the market, what marketing materials it has, what products, what feedback people have given to their products or services. And then I can also do a comparative analysis of competitors and what the strengths and weaknesses are of competitive products. And so I need a very good feeling of the entire market around that business to understand what I should be focusing on in the dealings.

CATHERINE FORD: Okay. Thank you very much, Peter. We're going to take a short break. And when we come back, we're going to talk about some of the best practices when it comes to actually using AI. Peter, coming back now to the question of best practices when using AI. There'll be lots of people who are listening to this and say, well, that's all great for a theoretical point of view. What does it mean in practice? What are the things that we need to really keep in mind if we start using AI in a transaction?

PETER EMMI: Well, I mean, going back to the same theme and you've seen it in the press as well, you have to double check the outputs. You have to go back and sort of backtrack a little bit once you get a piece of information that's coming from AI. And it says there's a real issue here. it gives you a snippet of information, really have to go back and look at the document from which it came, the documents that surround it and really understand what that means and if it's real in the first instance. So that's the thing that's happening and it's being quoted among the legal community and outside the legal community as well.

PETER EMMI: different articles out there were talking about that so there's got to be human intelligence inserted into that and that's one of the things that I talked about in the paper that was recently accomplished

CATHERINE FORD: We're going to reference that paper in our show notes. The thing that I'm curious to find out more about, is that something that will change, do you think? The more we use AI and the more that you train it, the need to cross-reference to double-check AI's work, so to speak. Will that decline or do you think that that is something that's always going to be there?

PETER EMMI: I think it's always going to be there. I think you're going to need to put less effort into the sort of cross-checking and back-checking work as AI evolves and users are able to and even law firms are able to customize it such that there's a corpus of data from which AI is drawing that you feel more comfortable with and you trust. right now you know it's pulling from all over the internet but it can be honed and sort of the data can be massaged in certain ways in which you can trust the outputs more because you know exactly what you're getting the influence from.

CATHERINE FORD: So, Peter, all of us have been in that situation where we've done all our diligence, we've done all our research, but then something comes as a curveball and you discover a piece of information completely out of the blue and it actually has a huge impact on the transaction. Have you ever find yourself in that kind of situation as well?

PETER EMMI: Yeah, that reminds me of one particular deal for which I was doing diligence. We were diligent seeing a software company was the target. And we had discovered that it had done some training. And this is a big topic in the AI space right now. And when we dug further, and it took a lot of further digging, because we didn't get the information directly from the target after asking it several different ways until we got on a call and had them face to face. on a Zoom meeting. And it turned out that the company had done web scraping to find a lot of the data that it used to train its software algorithms.

PETER EMMI: And upon further digging and further information that they had provided us, one group of that data had come from a source that was currently being litigated by the owner of that information with a separate entity. So it turned into a really, really big deal. And it didn't kill the deal, but it certainly changed the deal for us.

CATHERINE FORD: I can imagine. I can imagine. And just, I guess, a great example that, you know, you need to ask that question over and over again even if you're not getting an answer this first time around. Just the importance of sticking with it and following up. I guess the gut feeling, right?

PETER EMMI: Yes, of course, of course. And you have to be polite about it. You can't... the the so the team how do we approach this and we brainstorm internally about how do we do this is it best to have a zoom does it you know do we ask a bunch of questions and sort of there you know just keep ratcheting down or so there are different ways and it depends on how the other side responds how it reacts with your feet where your gut feelings are and so there's another area which the AI can't can't really solve for you you know which are gone feeling about what's going on or the information you've gotten AI cannot do that type of thing.

CATHERINE FORD: Do you think that AI is going to be that silver bullet that gives certain lawyers the competitive edge to secure a transaction? Or are there actually other things that lawyers will need to start looking at to allow themselves to differentiate themselves in that competitive environment?

PETER EMMI: Well, certainly AI in the knowledge of the tools that AI brings to the table with regard to diligence and other facets of doing legal work, well, give people a competitive edge, give attorneys a competitive edge to practice and to become more efficient to which clients absolutely love and need and to have better decision-making processes, especially when involved with large data sets or large numbers of documents. So that's helpful. But I think that another Another piece of this is that the attorneys are going to have to become increasingly special ops. They're going to have to have a better understanding of the different subject matter fields in which they're covering deals and performing diligence.

PETER EMMI: Having that subject matter expertise I think helps to understand what outputs are coming from AI, understand the tools better and how they can be used when not to use them to when to insert you know, emotional intelligence in different facets of the human interaction that becomes very valuable and gives that sort of extra value to the clients.

CATHERINE FORD: In your piece that we mentioned just now, you do speak a little bit about emotional intelligence and that human element to a transaction that AI can obviously never really fulfill. Can you elaborate on that for a little bit, please?

PETER EMMI: Yeah, I mean, so in interpreting words on a paper or interactions, emails, there's always going to be that extra understanding that a human will have over AI. Maybe I shouldn't say always because then I'll read my words someday. But right now, with the good state of AI, that level of understanding that not just taking words on the paper and understanding context in juxtaposition to other emails or documents or things that were going under the business or even things were going out in the world at the time. That's very important to have that understanding to make those decisions sort of incorporate.

CATHERINE FORD: Now, we're coming to the end of our podcast, and I'd like to wrap up with a look at what do you think will be the biggest advantage that AI can offer dealmakers, lawyers specifically, in a due diligence process, and what's going to always be a gap that it can't plug, just aside from the emotional intelligence that we mentioned just now. Talk to me first about the biggest advantages.

PETER EMMI: Well, you know, going back to some of the things we talked about earlier, the biggest advantages is just the ability to assimilate a large amount of information and maybe information that's even outside of the scope of, you know, the traditional scope of what we would cover or review for the diligence purposes. So, so to be able to assimilate that information, boil it down, provide outputs that allow you to make decisions much more quickly and much more thoroughly. along with doing the extra work that we talked about earlier to go back and unpeel the onion in some places to use the price.

PETER EMMI: And I think that's a big help and it's going to get better over time. The outputs are going to get more accurate and more useful and that's going to be a great thing for everyone involved and for clients especially. Now, I guess turning to what it won't cover, and you said, besides emotional intelligence, it's really about just pure logic, right? Things that are going to get spit out of software, AI driven software program that are just not going to give you the right impression as to what is actually happening. Again, you have to really use thought, use you know, and it spits out the information based on the algorithms that are used, that are in there, or at least maybe the queries that they put into the tool.

PETER EMMI: So, you know, that extra level of thinking about what is going on is something that I think humans, well, I think, and I guess in a lot of cases I'm reading articles where people hope that it will always be the case that the humans, that thinking process in human mind is always going to be a very useful tool.

CATHERINE FORD: I very much hope so. I think both you and I will find ourselves without a job if the machines ever take over. Peter, thank you so much for sharing your insights and your experiences in this incredibly exciting space. Thank you for coming onto the show today.

PETER EMMI: Thank you, Catherine. I really appreciate your time. Thank you.