AI and M&A – What you need to know

Deal features

Whilst acquiring an AI company is in many ways the same as any other M&A transaction, the fact that the target's business is (or has) AI means that they have some more unusual or nuanced characteristics:

• Due diligence and warranties – It will be important to understand the intellectual property rights associated with the AI model, and to focus on the policies and procedures that are in place for testing the performance and reliability of the AI system, as well as the quality of the data that the models are programmed to use. Appropriately tailored warranties can help allocate/mitigate risk.
• Merger control – A common concern among competition authorities is the market becoming closed to competition, with significant positions of market power and barriers to entry due to the concentration of data, computational resources and engineering talent among a small number of vertically integrated players. Competition authorities will be sensitive to increased concentration in the AI sector and therefore may be expected to carefully scrutinise such transactions.
• Foreign direct investment (FDI) – AI is captured by many FDI regimes globally, as it is increasingly regarded as a technology of critical or strategic importance. Given increasingly interventionist attitudes in this area and the proliferation of global FDI regimes, multiple filings may be required if the target is active in more than one jurisdiction. Purchasers should therefore seek to evaluate early whether the transaction is likely to require FDI clearance.
• Compliance – AI regulation is an area that is rapidly evolving and determining which legislative and regulatory frameworks impact the target will be a critical element of legal due diligence. Where the target business has a presence in more than one jurisdiction, multiple regulatory regimes may apply. Establishing that the policies and procedures of the target provide sufficient flexibility to adapt to the changing legislative and regulatory landscape will be just as important as determining historic compliance with such regimes.

Outlook for 2025

As AI continues to make headline news on a regular basis, it is likely that M&A activity in the sector will likely continue apace. It will be important for parties to monitor regulatory developments and ensure that they and any target business are compliant as the regulatory frameworks evolve, given that this is a key area of focus for regulators around the world.

For more information, including for example some sample due diligence questions and how risks that are identified as part of the due diligence can be mitigated, look out for our detailed guide which will follow soon.