The rise of AI development and its potential in innovation will likely spur a great deal of M&A activity. Companies will improve and emerge as a result of AI development and M&A transactions can be made more efficient with AI technology. The potential of AI is exciting but comes with risks that organizations ought to keep in mind when either building or improving their businesses with AI technologies or seeking to acquire other businesses whose focus is on AI or who utilize AI in their processes.
Existing companies will seek to use AI to develop their mode of operation and new companies focusing on AI technology will emerge. These companies will become targets in acquisitions based on the benefits that AI technology offers including, among other things, the lower costs of operations and the enhanced analytics that AI can provide. However, M&A activity surrounding organizations that use AI or sell an AI-based product may involve a heightened degree of risk. Notably, in an M&A transaction, parties will be required to scrutinize the technologies being implemented and the legal issues that arise in respect of those technologies and the data used to feed them. These legal issues will include compliance with data privacy regulations especially amid the rise of AI governance. It may also inform representations and warranties negotiations as an acquirer may wish to have representations and warranties from the target regarding compliance with data protection, cybersecurity and AI governance regulations.
Ever evolving AI technologies pose exciting capabilities in respect of preparing business for M&A transactions. AI can support strategic decisions in respect of whether an M&A deal should be pursued through an assessment of market trends, competitors and historic deal outcomes. One of the largest benefits is the use of AI technology is to assist with due diligence processes amid M&A deals. Notably, the ability for AI models to consume vast amounts of information and provide enhanced analytics allows to complete the due diligence processes in a cost and time-efficient manner and provides more information to deal advisors and counsel in their assessments of risk. One of the major concerns with the use of AI in due diligence models, however, is providing AI tools with data which is highly sensitive. Ensuring that the tools being used contain adequate data safeguards is exceptionally important.
Both parties of an M&A transaction are advised to take a holistic and informed approach to maximize the benefits of AI when preparing for closing and post-closing operations.
If you have any questions about adopting AI technologies in your M&A transactions, please reach out to a member of Miller Thomson’s Mergers & Acquisitions Group.
