Overview
AI is transforming M&A, including the “knowledge” buyers and sellers can have of the target. This may require revisiting M&A risk allocation mechanisms based on knowledge. It raises the question, does an issue identified by AI become the “knowledge” of the party using the AI?
For sellers, a key issue is how the seller’s “actual” or “constructive” knowledge is defined for the purpose of the knowledge qualifiers in their representations and warranties (R&Ws). For buyers, a key issue is how AI in due diligence (DD) could impact sandbagging, e.g., by increasing the value of a “pro-sandbagging” clause.
The follow-on question in both cases is whether the conventional drafting of these definitions and clauses should evolve. Questions around how AI “knowledge” could impact representation and warranty insurance (RWI) are also raised.
