AI Considerations for M&A Deals

As AI becomes ingrained in business, new concerns are arising for companies engaging in mergers and acquisitions. How a company uses AI, the associated risks of that AI use, and how AI adds value to a company’s business model are issues that M&A buyers should investigate as part of their due diligence process. A recent memo from Sheppard Mullin examines the impact of AI on M&A and identifies four areas of interest for M&A buyers evaluating AI-driven companies:

• Risk Allocation
• Protection of proprietary AI technology
• Cybersecurity and data privacy
• Compliance Support and Regulatory landscape

The memo also gives some advice to buyers on staying ahead of the AI-curve:

“As AI continues to advance and integrate into various sectors, M&A buyers need to stay ahead of the game when it comes to the unique challenges of acquiring AI-driven companies. By conducting thorough due diligence in the areas addressed above, buyers can better assess potential liabilities and ensure a smoother integration process. By focusing on and understanding these key areas, buyers not only mitigate risk but also position themselves to capitalize on the strategic advantages of AI technologies. In turn, buyers can make informed decisions that protect their investments and leverage AI for future growth.”

AI-driven businesses are likely to become more common as AI technology advances. Buyers should gain an in-depth understanding of how these business models work and evaluate the unique risks and opportunities presented by a company’s use of AI. While everyone wants to be on the cutting edge and reap the benefits of AI disruption, it is important to realize that new AI regulations and intellectual property concerns pose substantial risks to certain AI-driven businesses. Understanding and mitigating those risks can result in smarter deals that capture more value.