M&A Deals With AI Targets: Balancing the Opportunities, Risks, and Rewards; Retooling the Acquisition Model

Description

The surge in the use and development of AI systems and products, particularly generative AI, has increased interest in investing in and acquiring companies that offer AI solutions or that have integrated AI into their operations. However, acquiring a company that develops or uses AI technologies involves a myriad of unique issues that span the due diligence stage to preparing the sale and purchase agreement and related documents.

Buy-side advisers investigating a traditional technology company can easily review its proprietary software for standard intellectual property concerns. However, the review of an AI company's chief product is far more nebulous because the company's value is typically derived from datasets and proprietary models that absorb and analyze information. When conducting diligence on an AI company, the scope should be revised and expanded to include the company's rights to its models, data, and outputs as well as privacy, cybersecurity, and any potential legal grounds on which the target may be exposed to liability.

There are also specific considerations and concerns when preparing the sales and purchase agreement and other required documents when acquiring an AI company as the standard purchase agreement may not adequately address the risks involved. The representations and warranties contained in an agreement should describe how the company uses its AI assets and shift the risks associated with those assets. Counsel should also assess warranty and indemnity insurance policies and be aware that transferring ownership in AI technologies may trigger increased regulatory scrutiny from an investment and antitrust perspective.

Listen as our authoritative panel discusses the unique aspects of an M&A deal involving an AI company. The panel will explore key considerations for counsel to avoid several pitfalls inherent to these deals and they will provide a tailored approach that goes beyond standard acquisition agreements.