Business mergers and acquisitions rely on the sharing of a significant amount of sensitive information between the buyer and seller. As AI continues to evolve and be integrated into business with increasing speed, it puts sensitive information at risk and threatens the protection of confidentiality agreements. Businesses should consult a Stamford business transaction lawyer from Wofsey Rosen to understand gaps and potential management solutions to protect their information.
Understanding the AI Landscape in Regards to Mergers and Acquisitions
During a merger or acquisition, buyers must be able to review a company’s information to determine if moving forward is a wise investment. In turn, sellers must make this information available. Sellers traditionally use confidentiality agreements to protect sensitive company information and prevent it from being shared outside of the parties who need to access it. These documents often outline what penalties and action steps may be taken if the terms of the confidentiality agreement are violated.
As the AI landscape has shifted and expanded, businesses have incorporated these tools into creating confidentiality agreements or conducting tasks related to them. While AI can be a useful tool in many time-saving ways, it can put the safety of data and business at risk. From intellectual property to proprietary information and beyond, the exposure of business assets and financial information could threaten a business’s ability to operate.
How AI is Being Used in Mergers and Acquisitions and the Problems it Can Create With Confidentiality Agreements
One of the ways AI is being used in mergers and acquisitions is to assist with due diligence. During this phase, buyers often have a lot of information to review and may use AI to ease the time burden. This may include filtering for financial information, risks, summaries, and other potential issues that could affect a buyer’s decision or the final terms of a deal. However, to effectively protect your business, it’s essential to .
One of the biggest issues of using AI during a merger and acquisition is that open-source AI platforms may take what users input to train their models or store the data that was run through the model. This can contradict the purpose of a confidentiality agreement, which could put shared sensitive data at risk. This can be particularly dangerous if a business’s trade secrets are included, which are protected under Connecticut’s Uniform Trade Secrets Act. These laws provide specific legal safeguards and requirements.
AI tools can also make mistakes like incomplete risk assessment, hallucinated summaries, or improper data retention. Any of these errors can threaten the safety of sensitive information.
Data breaches, platform use of copyrighted information, and/or federal- or state-level compliance violations can lead to information exposure, inaccurate results and interpretations, or significant legal issues. These issues can have serious ramifications on security and mergers and acquisitions, which is why steps should be taken to protect the integrity and effectiveness of confidentiality agreements.
Confidentiality Agreements and AI Management Practices during Mergers and Acquisitions
By understanding the intersection of AI usage and confidentiality agreements, along with its associated risks, you can better protect your business’s information throughout the due diligence stage and beyond. Sellers can take steps to include specific provisions within confidentiality agreements to prohibit or limit the prospective buyer from using AI. These terms should be stated explicitly so there is no uncertainty, and ensure the terms are compliant with all applicable laws.
Companies can also draft AI policies that address AI usage and information transfer throughout due diligence. This helps create a standardized workflow and process during mergers and acquisitions, or any other transaction that involves a similar exchange of information. The use of redactions in some documents may also be helpful at times. However, to maximize security and minimize potential issues during the merger and acquisition process, human involvement at various key points can be beneficial.
If AI is to be used in any part of the process, segmentation or secured AI platforms should be considered to ensure compliance with confidentiality agreements and all applicable laws. It is also essential to understand how the platform handles data. Taking the time to conduct research and consult with lawyers can help your company make the necessary decisions ahead of time so guardrails can be implemented.
Why Legal Support is Beneficial when Handling Confidentiality Agreements During Mergers and Acquisitions
While including AI management practices in your confidentiality agreement is an important step, legal support can provide the greatest level of protection. Not only does this ensure that there is human involvement, but lawyers can provide knowledgeable oversight with your business’s interests in mind. Business lawyers can help across various stages of the merger and acquisition process in a proactive or reactive capacity.
In a proactive capacity, experienced attorneys can discuss your company’s options, conduct a risk analysis, and gain a comprehensive picture of how to move forward. Drafting sound policies and enforceable confidentiality agreements can provide protection from the start. Lawyers are also adept at reviewing confidentiality agreements to make sure that terms are not violated and are still conducive to navigating the due diligence process.
Additionally, with so much sensitive information on the proverbial table, disputes may arise during mergers and acquisitions over AI usage during due diligence and its compliance with confidentiality agreements. These can be highly complex situations, so it is essential to have legal representation on your side. Lawyers protect your business’s rights and data security as they work to identify violations, revise policies, recover information, and more to help you and the other party resolve the dispute.
Consult Wofsey Rosen Today
To ensure maximum protection throughout your merger and acquisition, consult the team at Wofsey Rosen. We can help your business consider a variety of factors and draft confidentiality agreements that address AI gaps and concerns. As AI continues to evolve, we monitor its developments and provide you with updated counsel. Schedule a consultation with our team to discuss how you can mitigate your business’s risks throughout a merger and acquisition.