Considerations for Mergers and Acquisitions in the AI Space

Contrary to analysts’ predictions, mergers and acquisitions (M&As) did not surge as expected in the first part of the year. This was mainly due to a range of uncertainty, from global unrest to market volatility. However, the market remains teeming with possibilities as businesses seek accelerated growth, preferring the more risk-averse approach of merging or acquiring already established businesses to starting from scratch.

But there is one area that continues to see high activity: M&As in the AI sector. Reuters reported a 42% spike in M&A transactions in technology in the first quarter of 2024, bringing in the largest share of M&A deals in that time period.

Technology acquisitions, or “Techquisitions” experienced a slump in 2023, but with 2024 deals already at $158 billion, there is a strong possibility that this trend will continue.

As CEOs race to build out procedures that help their operations internally and remain competitive, M&As, especially in ‘Generative AI’, continue to grow almost as fast as the technology.

Some notable “techquisitions” include:

• Investment firm Thoma Bravo acquired AI-powered cyber security company DarkTrace for $5.3 billion.
• Investment Fund Manager EQT acquired Open-Source API management provider, WS02.
• Docusign acquires Lexion AI-powered Agreement Management Tool for $163 million.

However, a significant issue has always been the gap between the rapid development of technology and industries’ swift adoption, and the slow pace at which legislators introduce and implement new rules to meet market needs.

This leaves practitioners and businesses at a disadvantage, creating more confusion and the risk of non-compliance.

Important Considerations when Acquiring an AI Company

• Due Diligence: When merging with an AI company, it is vital to undertake comprehensive due diligence. This includes accessing the company’s technology, including intellectual property rights, the company’s operations, including employment, and third-party vendor agreements, and their regulatory compliance.
• Data and Security: Ensure that the target company takes the appropriate cybersecurity measures and review how data is handled. Also, make sure that data protection laws are adhered to, such as the California Consumer Privacy Act (CCPA) and the EU’s General Data Protection Regulation (GDPR).
• Antitrust Laws: Review how this merger will affect the marketplace and ensure all antitrust laws are met. This is especially important as governments continue to closely monitor such transactions to maintain fair competition and encourage innovation in the technology space.
• Licensing: Conduct due diligence to make sure that all the licensing requirements have been met.
• Contracts: Carefully review existing contracts and make sure that the M&A will not prompt any changes to said contracts.

Jacko Law Group believes that the application of best practices, adapting old rules to new situations, and maintaining thorough documentation of compliance efforts can help businesses stay ahead of the curve and demonstrate their culture of compliance, even in the unknown.

If you are in the process or considering an M&A transaction within the AI space, we encourage you to contact us with any questions at 619.298.2880 or email [email protected].