Getting deals done in a changing AI environment
AI technologies are attracting significant attention—including from large “serial acquirer” technology companies. While acquisitions in the AI space are not paticularly new, the acceleration and deployment of emerging technologies require acquirers to consider how due diligence and deal terms should be adjusted, paticularly with respect to technology and related intellectual propety rights. Some AI focus will likely become pat of every technology company acquisition, with more comprehensive reviews and deal terms for targets that provide AI products or depend heavily on AI. Some key considerations for navigating AI in M&A transactions include:
Have a conversation
A well-structured conversation with the target’s technologists, businesspeople, and legal representatives is one of the most effective diligence tools. This live conversation provides a unique forum for real-time conversation, which for AI often includes development of the target’s AI technology and models, explainability and management of bias in modeling, and data collection and use.
Focus on data
Improper collection, use, or transfer of data creates potentially- costly problems and can even cause a deal not to go forward. Each type of data may be subject to rights and restrictions enforceable by others – such as copyrights, personal privacy rights, contractual restrictions, and regulatory requirements. In diligence, the acquirer should ask about the target’s data sources.
Question IP protection for target technology
Not all uses of AI will affect IP protection, but where a target has actually used AI to create key technology, interesting questions arise about the scope and strength of the IP rights available to protect that technology. These questions could arise for outputs of AI systems and also for trained AI models, especially if third party data has been used for training purposes. In diligence, acquirers will want to understand the sources of the target’s innovation and competitive advantage and to what extent AI generated key technology.
Consider regulatory compliance
For technology companies using AI, a changing regulatory environment will require a focus on compliance policies and practices. Acquirers will also need to understand the use of AI for purposes considered “high risk,” whether under new regulations or existing laws. Any ongoing investigations, audits, and complaints will be scrutinized, and acquirers will likely seek risk- allocation provisions related to noncompliance.
Governments in many jurisdictions are now seeking to protect and regulate transactions involving AI businesses using foreign direct investment regulations, which are often drafted broadly to capture the widest variety of transactions.
Our team is distinctively positioned to provide sophisticated support as M&A transactions related to the evolution of AI technologies as these technologies raise questions on data use, create new IP risks and value, and attract new regulations. Our mergers and acquisitions team is ranked among the Elite law firms for Corporate M&A by Chambers USA, and our lawyers, in collaboration with our IP, antitrust, trade, foreign direct investment, privacy, and other regulatory and policy teams, have acted as M&A counsel to many of the largest and most sophisticated players in the technology sector.