Partner Piece: The Rise of Artificial Intelligence in M&A

February 27, 2025

The Rise of Artificial Intelligence in M&A

 

By Tim Bird (Corporate Partner) and Caitilín Hepworth (Corporate Associate) at Fieldfisher LLP

 

Revolutionising due diligence

The rapid evolution of Artificial Intelligence (AI) and its potential to transform businesses and industries worldwide is a topic of widespread discussion.

M&A experts are increasingly focusing on how AI technology can enhance the lifecycle of M&A transactions including the role AI can play in improving traditional processes such as due diligence.

Due diligence remains a cornerstone of the M&A process – a crucial exercise for investigating and evaluating the financial, legal and operational position of a target business to gain clarity on the assets that are being acquired and any potential risks, liabilities and opportunities associated. This process can often be time-consuming and complex, and involve the review of large volumes of documents and data – such as commercial contracts, leases, intellectual property and financial statements – within a virtual data room.

AI integration is expected to revolutionise this process by accelerating and streamlining the organisation of the virtual data room and the review and reporting of the data held within, reducing the time incurred by advisers and their clients overall.

 

Redefining “fair disclosure”

Not only are these changes expected to impact how due diligence is conducted, but also how risks are allocated between buyers and sellers.

For example, the crucial concept of “fairly disclosed” information in M&A transactions traditionally involves human analysis to ensure relevant information is disclosed in a manner which allows the buyer to understand the issues and risks associated with the acquisition. An important question is how “fairly disclosed” information should be defined within the context of AI’s growing role in the virtual data room and due diligence process – should human analysis remain the key benchmark for disclosure, or should AI-driven analysis be considered?

 

Managing risks

Due to the growing development and implementation of AI technology by target businesses for internal and customer facing use, new areas of risk have been introduced which must be reviewed and considered as part of the transaction. In particular, risks such as intellectual property concerns, regulatory compliance issues, ethical and data privacy challenges need to be carefully considered.

Generative AI systems present significant governance challenges in relation to the reliability and accuracy of their training data. Furthermore, ownership issues surrounding this data, and its potential infringement of privacy or intellectual property rights, have become growing points of concern, as evidenced by recent litigation surrounding Large Language Models (LLMs).

Buyers will want assurance that the integration of AI within a target business is accurate, reliable and poses no threat of intellectual property or privacy infringement as well as being secure from a cyber security perspective. In addition to compliance with local intellectual property and privacy laws, a buyer will want to know that a target business using AI in the EU is compliant with the new EU AI Act.

As a result of this, buyers are increasingly seeking greater contractual protection through AI-related warranties and indemnities in the underlying transaction documentation. In some instances, insurance may provide cover against AI-related warranties and indemnities, however the exclusions should always be closely inspected.

 

Get in touch

Our corporate lawyers offer expert legal services in M&A, venture capital, private equity, and joint ventures for public and private companies, entrepreneurs, and funds. Our tailored advice spans the technology, media, energy, life sciences, and financial services sectors amongst others, ensuring successful navigation of complex transactions.

If you require any guidance or assistance on the topics discussed in this article, please get in touch with Tim Bird and Caitilín Hepworth at Fieldfisher LLP.

Tim.Bird@fieldfisher.com

Caitilin.Hepworth@fieldfisher.com

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