Key Takeaways

  • ParkerGale deployed machine models to extract assignment rights, change of control terms, and annual contract values across every customer contract in a corporate carve-out.
  • Automated meeting transcription unified 25 participants across legal, operations, and third-party vendors, but generated broad context sprawl across deal workstreams.
  • One technical diligence output began as a 40-page synthesis, expanded into an eight-to-nine tab spreadsheet with 40 rows each, and triggered endless operational debate.
  • External law firms bill by the hour to review whatever documentation deal teams produce, turning unedited AI output into ballooning transaction expenses.
  • Deal leads must insert an operational filter between technical AI generation and external counsel to condense findings before legal drafting begins.

The Forty-Page Diligence Trap

Carve-outs require separating entangled operations without breaking existing commercial relationships. When ParkerGale tackled contract review for a recent carve-out, Kevin Gorman put automated tools to work on the customer base. The software analyzed every commercial agreement, sorting which contracts belonged to the target business and which stayed with the parent corporation. It tagged the annual contract values, pulled out assignment restrictions, and isolated change of control triggers across hundreds of agreements.

That speed created immediate clarity on contract transferability. But processing power introduced an unexpected problem: data sprawl. The output did not stay compact. As Ryan Milligan pointed out, one technical workstream started with a 40-page summary generated by technical teams. Deal leads then converted that dense summary into a sprawling spreadsheet with eight or nine tabs, running 40 rows each. The review loop quickly degraded into internal gridlock: “new column, new column, new column.”

AI can read an entire data room in minutes, but human operators still have to resolve the exceptions. When diligence software flags every ambiguity, deal teams drown in edge cases that matter very little to commercial value. The efficiency gained during initial extraction disappears into spreadsheet administration.

Why Lawyers Cannot Receive Raw AI Output

The second failure point appears when teams push AI summaries directly to external law firms. Gorman noted that automated transcripts from an initial 25-person meeting provided useful baseline context for onboarding downstream operators, lenders, and vendors. Yet as more participants joined the room, the documentation volume exploded. “You get a lot of sprawl of context and information that AI is jamming into these documents or into these reports that become just way more sprawling,” Gorman observed. “And then lawyers get involved and that becomes even more: the bounds are limitless in terms of content that can be created.”

Outside counsel bills for time spent reading, clarifying, and papering every detail put on their desks. If an associate receives an unedited 40-page AI operational brief or an uncapped audit sheet, they will spend billable hours reconciling every line item into the Transition Services Agreement (TSA) or purchase contract schedules.

Milligan argued that private equity professionals must act as an editorial buffer. “Business people then need to kind of, you know, take that to a certain point, dumb it down, and give that version of something to a lawyer who can then turn it into a legal document,” Milligan said. “Because all this work that we talked about up to where I said handed to a lawyer is all operational.” Diligence output is not legal drafting. Passing automated research straight to counsel converts cheap software compute into expensive partner billables.

Why It Matters

Generative diligence tools lower the cost of information retrieval while raising the cost of synthesis. When data volume ceases to be a constraint, deal teams risk confusing exhaustive extraction with actionable underwriting. Sponsors who fail to establish strict editorial filters before passing diligence to outside counsel will see their transaction expense budgets erode without gaining downside protection.