The PE Playbook: Translating AI Risk Into Deal Structure

Key takeaways

• Sponsors should assess broader operational assumptions beyond traditional software or technology diligence, such as rights to training data, dependencies on third-party providers and other legal/technical foundations for supporting future growth.
• Traditional transaction tools, including representations and warranties insurance, are not designed to cover AI risks that can emerge after closing.
• Protecting the investment thesis requires more than legal compliance, and sponsors should ensure the target has the rights, governance and key talent necessary to execute its post-close strategy.

When PE sponsors underwrite an AI-driven platform or a target leveraging proprietary models, the technical blind spots identified in our March 10 article — such as dynamic data dependencies and unpredictable future performance — cannot simply be outsourced to standard legal diligence. They directly impact the investment thesis, purchase price, transaction structure and,