5 signs it’s time to automate your private equity NDAs

February 8, 2024

Contract automation is an effective way to free up internal resources to push toward a private fund manager’s strategic goals. With non-disclosure agreements (NDAs) and other routine legal contracts taken care of, in-house lawyers and deal professionals can focus their time and attention on what matters most: closing deals, generating superior-risk adjusted returns, and preparing for new U.S. Securities and Exchange Commission (SEC) regulations going into effect in 2024 and 2025.

5 signs private equity firms should implement NDA automation

Not every private equity firm or investment bank has the same relationship with outsourcing. Some kept routine work in-house as long as possible, while others have outsourced numerous processes over the years.

Now that traditional outsourcing has evolved into contract automation, firms that still handle their NDAs in-house or send them to outside counsel should review these five signs that it’s time for a new arrangement.

1. NDAs consume too much time

In-house lawyers and deal professionals should be able to dedicate their working hours to valuable strategic tasks that bring the firm closer to its business goals. Yet, these professionals often complain manual tasks like negotiating private equity NDAs take time away from what matters most.

Ontra and Wakefield Research surveyed over 400 professionals across private equity, private credit, real estate, and infrastructure. We found 65% of respondents spent 6 or more hours on NDAs each week. Scarily, 17% of respondents spent 10 or more hours per week on NDAs.

The results get worse when asked if the person agreed that the firm’s NDA process negatively impacted their ability to close a deal in the previous year. Fifty-eight percent agreed in total, including 23% who strongly agreed.

It’s unnecessary for routine contracts, such as NDAs, to take up so much of private equity professionals’ time. AI advanced significantly in 2023, providing the industry with a purpose-built Contract Automation solution that frees their time for strategic and creative work.

Nonantum Capital saves over 1,000 hours with Ontra

A private equity firm may have junior investment professionals negotiate NDAs and other routine agreements. However, given these professionals’ lack of legal education and experience, there’s inherent risk in relying on them to negotiate contracts on behalf of the firm. Non-legal professionals might delay the contract turnaround time with unnecessary negotiations, agree to off-market or inconsistent terms across NDAs, or in the worst-case scenario, damage a potential business relationship before it gets off the ground.

NDA management also isn’t the best use of investment professionals’ time. Analysts, associates, and VPs are better off focusing on their core tasks, including sourcing and evaluating target deals, closing new deals, and managing portfolio investments. Tasks outside their wheelhouse distract them from valuation-creation activities that impact returns.

3. In-house legal lacks time to focus on SEC compliance

In August 2023, the SEC adopted several private fund adviser reforms. Soon after, the Director of the SEC’s Enforcement Division, Gurbir S. Grewal, spoke to the New York City Bar Association’s Compliance Institute 2023 about the importance of maintaining “proactive compliance.”

The SEC’s message is loud and clear: The countdown to compliance is on. The SEC expects private fund managers to use this year to fully comply with the wealth of new rules, from restricted activities to quarterly statements and audits.

Private equity general counsels (GCs) and chief compliance officers (CCOs) have a lot on their plates, and the last thing anyone at the firm needs to worry about is their NDAs. By adopting an AI-powered contract automation solution, GCs and CCOs have the time to concentrate on enhancing their compliance programs without losing out on nights and weekends with family.

4. The firm sends NDAs to outside counsel

Nothing will ever replace the value of experienced outside legal counsel. This relationship is vital to private equity firms. However, too many private equity firms still outsource NDAs and other routine agreements to their traditional law firms. Typically, the firm assigns this work to associates who manually handle the agreements, which can lead to inconsistencies, long contract turnaround times, and a high price tag.

NDAs and other routine contracts aren’t the best use of outside counsel’s time, particularly when private equity firms consider the hourly fees. By shifting to a contract automation solution, private equity firms and their outside counsel can focus their relationship on high-priority tasks, potentially lowering the law firm’s invoices.

5. The firm’s deal volume rises

Deal-making slowed in recent years given the high-interest rate environment, leaving the global private equity industry sitting on $2.59 trillion in dry powder as of 2023, according to S&P Global Market Intelligence.

While the industry is unsure of the upcoming macroeconomic environment, there’s plenty of optimism, particularly for the technology, digital infrastructure, energy, and healthcare sectors. If interest rates and inflation improve, firms will likely see a higher deal volume and, as a result, a higher NDA volume. While firms could take a wait-and-see approach, those that anticipate the market changes and embrace private equity NDA automation will be better prepared to evaluate and close new deals quickly,

The top private equity firms use contract automation and AI

Years ago, outsourcing in the financial services industry felt like a dirty word. Yet it became clear to private equity firms and investment banks that their time and money were better spent on their value-add strategic functions rather than routine processes. The impact of that attitude shift was an increase in outsourcing back-office processes.

Slowly, firms accepted outsourcing as not only financially necessary but strategically advantageous. They began outsourcing some middle- and even front-office processes, and eventually, an entire industry grew to address this need: alternative legal service providers (ALSPs).

In recent years, outsourcing has evolved into automation because of advances in artificial intelligence (AI), and now ALSPs are typically tech-focused rather than a pure outsourcing solution.

For example, Ontra’s Legal Operating System for private equity includes Contract Automation, a human-in-the-loop (HITL) automation solution for high-volume, routine agreements. We’ve combined the power of Open AI’s GPT-4, our proprietary machine learning (ML) models, industry-specific data, and a global network of freelance lawyers to provide a fast and accurate solution to private equity’s routine contracts.

An added benefit: structured contract data

Another benefit of an industry-specific contract automation solution is the ability to access structured data from routine private equity contracts.

Contract automation software that offers negotiation assistance alone doesn’t solve all the issues surrounding NDA management in the private equity industry. Meanwhile, software built on a foundation of private equity expertise and market data offers a distinct advantage by providing a comprehensive solution to managing a growing volume of NDAs.

The right document processing tool uses AI-powered technology to provide private equity firms with organized and labeled data. As a result, firms can analyze data and pull actionable insights from the routine contracts they often take for granted.

In Contract Automation by Ontra, private equity firms can immediately pull up several reports. For instance, a dynamic report provides firms with an overview of their precedent. GCs, CCOs, and investment professionals can easily explore contract provisions like non-solicitation clauses, standstills, and contract duration to both facilitate compliance and determine whether the terms they typically agree to are changing over time.

See how faster NDAs can give you a competitive edge

Additional Resources

Ontra is an alternative legal services provider. We are not a law firm and do not provide any legal services, legal advice, or referral services and, as a result, we do not provide any legal representation to clients, nor do we participate in any legal representation of clients. The contents of this article are for informational purposes only, and are not intended to constitute or be relied upon as legal, tax, accounting, regulatory, or other professional advice, opinion, or recommendation by Ontra or its affiliates. For assistance or guidance regarding the impact or applicability of the topics discussed in this article to your business, please consult your legal or other professional advisers.