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Smart acquisitions: AI in M&A

This article is an extract from the European M&A Outlook 2025. For the full report, please fill in the form here.

New EU legislation mandates stricter due diligence and liability assessments in M&A, particularly for AI systems. Compliance is likely to heavily influence transaction structuring, valuations and demand for insurance coverage.

Over the past couple of years we have seen the role of artificial intelligence (AI) becoming increasingly significant in M&A transactions.

The primary objectives in traditional M&A include achieving economies of scale, synergising operations and diversifying products or services. Technology, media & telecoms (TMT) M&A transactions add an additional layer: the acquisition of specific intangible assets such as intellectual property, data and innovative technologies, including AI.

In addition to the increase in the number of acquisitions of AI companies, AI has also become increasingly important as a tool in M&A transactions. Many players within the M&A world experiment with or use AI tools, including generative AI (GenAI), to enhance the efficiency and accuracy of due diligence or provide assistance during the review and negotiation of transaction documents.

The increasing significance of AI is further underlined by the entry into force of the European Union’s AI Act in August 2024 and its gradual applicability from February 2025. This establishes a regulatory framework for providers (including product manufacturers), users, distributors and importers of AI systems and is expected to boost investor confidence.

Reflections and projections

Recent examples of AI-driven deals in the TMT sector in 2023 include BioNTech’s acquisition of InstaDeep, a UK-based AI company, for GBP 562m and Amazon’s acquisition of Estonia-based Snackable AI, an audio content discovery engine. Another transaction that underscores the vitality of the TMT sector is Microsoft’s strategic move to invest USD 16m in Mistral AI. These acquisitions and investments illustrate the development of AI capabilities and the ongoing interest and confidence in AI technologies.

TMT is expected to remain one of the leading sectors for deal activity in Europe, despite a decline in aggregate deal value in 2023 due to lower valuations and higher financing costs. Its resilience reflects the continued demand for technology solutions and innovation across industries, as well as the expansion in digital markets. Subsectors such as software-as-a-service, cybersecurity, AI and cloud computing will offer high- growth potential and recurring revenue streams for PE investors. In addition, AI tools are likely to boost TMT transactions in the coming years, as companies seek to acquire or develop AI capabilities to enhance their products, services and processes and to gain a competitive edge in the evolving digital landscape.

Targets applying AI

As the AI Act entered into force on 1 August 2024, assessing the risk level of AI systems and their compliance with the AI Act is – and will increasingly become – an essential part of due diligence in TMT M&A transactions. In addition, depending on the role of the target company (e.g. as a provider or deployer of AI), it will be crucial to assess information on the ownership of AI-generated content, compliance with data protection regulations and liability for AI decision-making.

The AI-related risks identified in the due diligence phase should then be addressed in the transaction documents through appropriate warranties and indemnities (W&I) or completion conditions. Evidently, the seller should provide more specific and comprehensive representations and warranties regarding compliance with the AI Act, especially if high-risk AI systems are being used. In addition, the parties may need to include more tailored completion conditions relating to the target company’s AI systems, such as obtaining or maintaining any necessary authorisations, registrations, certifications or notifications under the AI Act to comply with any ongoing or reporting requirements. These findings may also affect the valuation, negotiation and structuring of the M&A transaction.

Furthermore, in the event of W&I-insured transactions, the parties and their insurers should adapt the scope of their due diligence, disclosure and underwriting processes to account for AI risks and to ensure that the W&I insurance provides adequate coverage. As there are many uncertainties about the application in practice of the AI Act, we expect W&I insurances to be in demand by buyers in AI-heavy TMT transactions.

Liability

Liability with respect to AI is a complex and evolving issue that raises various legal questions. One of the main challenges is determining who is responsible and liable when an AI system produces errors or causes damages. Depending on the nature and function of the system, different parties may be involved, such as the developer, the provider or the deployer.

The AI Act does not introduce a specific liability regime for AI, but rather refers to the existing EU and national liability rules, which may not be well-suited to address the complexity and unpredictability of AI. Hence, directors should be aware of the potential liability risks associated with the use of AI in their business operations and act appropriately to mitigate such risks. This includes conducting due diligence, implementing risk management and control systems, effectively ensuring compliance with the EU AI Act and other relevant laws and obtaining adequate insurance coverage.

In so doing, directors can not only protect the company and themselves from liability claims, but also enhance the reputation of their companies, a prerequisite for successful M&A.

Support of GenAI in M&A transactions

The possibilities of GenAI are changing the way players within the M&A world conduct transactions. GenAI applications – such as Harvey for legal and Microsoft Copilot for general corporate use – are able to support and improve certain processes within a transaction by their ability to quickly analyse vast data sets, identify risks and provide actionable insights. The embrace of AI reflects a commitment to innovation and will improve the quality and the efficiency of M&A transactions.

It is clear that AI and AI-powered companies have an increasing role to play in M&A. With new AI developments emerging, new applications will follow, and with new applications new regulations will emerge. CMS is monitoring the developments closely and we look forward to the next chapters of AI in M&A.

Authors

Elmer Veenman
Elmer Veenman
Partner
Advocaat
Amsterdam