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M&A Deals With AI Targets: Balancing the Opportunities, Risks, and Rewards; Retooling the Acquisition Model

Navigating Unique Due Diligence Concerns and Tailoring the Purchase Agreement to Account for Risks Inherent With AI

Recording of a 90-minute premium CLE video webinar with Q&A

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Conducted on Wednesday, February 28, 2024

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This CLE webinar will explore the opportunities, risks, and rewards of acquiring an AI company. The panel will discuss the unique due diligence concerns on a target in the AI space, special considerations for drafting the purchase agreement, and how these deals require careful allocation of risk through indemnities, representations, warranties, holdbacks, escrow, and price adjustments.

Description

The surge in the use and development of AI systems and products, particularly generative AI, has increased interest in investing in and acquiring companies that offer AI solutions or that have integrated AI into their operations. However, acquiring a company that develops or uses AI technologies involves a myriad of unique issues that span the due diligence stage to preparing the sale and purchase agreement and related documents.

Buy-side advisers investigating a traditional technology company can easily review its proprietary software for standard intellectual property concerns. However, the review of an AI company's chief product is far more nebulous because the company's value is typically derived from datasets and proprietary models that absorb and analyze information. When conducting diligence on an AI company, the scope should be revised and expanded to include the company's rights to its models, data, and outputs as well as privacy, cybersecurity, and any potential legal grounds on which the target may be exposed to liability.

There are also specific considerations and concerns when preparing the sales and purchase agreement and other required documents when acquiring an AI company as the standard purchase agreement may not adequately address the risks involved. The representations and warranties contained in an agreement should describe how the company uses its AI assets and shift the risks associated with those assets. Counsel should also assess warranty and indemnity insurance policies and be aware that transferring ownership in AI technologies may trigger increased regulatory scrutiny from an investment and antitrust perspective.

Listen as our authoritative panel discusses the unique aspects of an M&A deal involving an AI company. The panel will explore key considerations for counsel to avoid several pitfalls inherent to these deals and they will provide a tailored approach that goes beyond standard acquisition agreements.

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Outline

  1. Overview of the AI M&A market
  2. Opportunities, risks, and rewards with AI targets
  3. Pitfalls unique to transactions involving AI
  4. Considerations and questions to ask the target during the due diligence phase of the deal
  5. Tailoring the sales and purchase agreement and other required documents to address the risks involved with AI
    1. Allocating risk through indemnities, representations, warranties, holdbacks, escrow, and price adjustments
    2. Assessing warranty and indemnity insurance policies
  6. Increased regulatory scrutiny
    1. Foreign direct investment (FDI) review
    2. Antitrust review
  7. Additional issues and considerations

Benefits

The panel will review these and other key issues:

  • What are the unique characteristics of an AI company that require an expanded and revised scope of review during the due diligence stage of a deal?
  • What are some key diligence questions to ask of acquisition targets working in the AI space during the evaluation process?
  • How should the purchase agreement and other required documents be tailored to address the unique risks involved with AI?
  • What is the current regulatory framework governing AI deals that counsel should be aware of?

Faculty

Jacobson, Julia
Julia B. Jacobson

Partner
Squire Patton Boggs

Ms. Jacobson helps clients maximize the value of their strategic relationships by drafting and negotiating a wide range...  |  Read More

Kantaros, David
David W. Kantaros

Partner
Foley & Lardner

Mr. Kantaros serves as Co-Chair for Artificial Intelligence within Foley & Lardner’s Innovative Technology...  |  Read More

Padgett, Zac
Zac Padgett

Partner, M&A and Private Equity
Orrick Herrington & Sutcliffe

Mr. Padgett focuses on supporting companies and investors developing technologies for nascent industries like energy...  |  Read More

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