Navigating AI Legal Risks in M&A Playbooks: A Comprehensive Guide for Buyers and Sellers

Generative artificial intelligence (AI) has rapidly evolved in recent years, presenting new challenges and opportunities for companies involved in mergers and acquisitions. As AI becomes more ingrained in business operations, acquirers and sellers alike need to update their M&A playbooks to address the legal risks associated with AI in enterprise environments.

In the past, AI may have been seen as a niche area of due diligence in M&A transactions. However, as AI technologies become more pervasive, buyers now routinely include AI-specific representations in purchase agreements. This means that sellers must be prepared for detailed AI-specific diligence, which may be new territory for sell-side deal teams.

To properly address the new AI workstream in mergers and acquisitions, buyers and sellers must consider appropriate inquiry and risk mitigation measures at each stage of the deal. This includes:

Pre-Kickoff:
– Conducting an inventory of AI and applicable terms within the company
– Establishing responsible use policies and oversight for AI technologies
– Proactively managing new technology risks and demonstrating appropriate visibility into the company’s AI workflows

Purchase Agreements:
– Enhancing traditional IP representations with new AI representations
– Addressing core considerations in the context of AI, such as training data, compliance with laws and contractual commitments, and internal policies and governance processes

Post-Closing Integration:
– Updating AI use policies and practices to integrate the acquired business into the buyer’s broader AI management framework
– Considering updates to AI risk profiles in response to changing regulations and business dynamics
– Reviewing and updating customer and supplier terms to ensure rights and risk allocation align with the combined companies’ AI goals

The increasing prevalence of AI technologies in products and services means that buyers and sellers must carefully consider the impact of these innovations throughout the deal process. Early research and discussions on AI-related issues are crucial to avoid last-minute delays in transactions.

As AI continues to reshape the business landscape, companies involved in M&A transactions must adapt their strategies to address the evolving legal risks and opportunities presented by AI technologies. By updating their M&A playbooks and considering AI-specific considerations at each stage of the deal, companies can navigate the complexities of AI in enterprise environments more effectively.

This article was authored by Sarah Schaedler, Daniel Healow, and Zac Padgett from Orrick. Orrick is a global law firm specializing in technology transactions and energy tech, among other areas.

The opinions expressed in this article do not necessarily reflect those of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax.

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