DealLawyers.com Blog

This Baker Donelson publication refers to AI as the “deal team’s new colleague” and describes ways AI helps buyers to be both fast and thorough in an auction process where “the buyer that reaches conviction fastest usually wins.” From deal sourcing to due diligence, drafting and integration, AI can be a valuable tool in all stages of the deal process, but it comes with risks of its own. The alert shares these four guardrails to ensure the AI use itself doesn’t create more risk:

Confidentiality and the Nondisclosure Agreement (NDA). Most confidentiality agreements were drafted before generative AI existed. Uploading a target’s data room contents into a third-party AI tool may constitute disclosure to a third party in breach of the NDA, particularly if the vendor’s terms permit customer inputs to be used to train or improve its models. Use enterprise-grade tools with contractual model-training carve-outs and SOC 2-level security, and address permitted AI use expressly in the NDA and the data room rules of engagement. Sellers should impose the same discipline on buyers.

Privilege. AI-assisted analyses prepared by counsel should carry the same protection as any other work product, but the mechanics matter. Prompts, outputs, and vendor-side logs may be discoverable if privilege is not deliberately preserved. Ask where the data resides, who at the vendor can access it, how long the vendor retains it, and whether the vendor has a credible process for preserving privilege, as more tools are failing buyers’ security reviews on privilege-handling grounds.

Verification. AI systems still err confidently. A hallucinated contract term, a fabricated citation, or a missed exception can distort valuation or leave a party without recourse post-closing. AI can prepare the first pass, but qualified professionals must verify the analysis and own the conclusions. Build a written verification protocol into the workplan and document that human review occurred.

Your Confidential Information. The deal model, the negotiation strategy, and the client’s confidences deserve the same protection you demand for the target’s data. An AI use policy should be part of the deal team’s standard workplan, identifying which tools may be used, what data may be uploaded, and what approvals are required.

– Meredith Ervine