AI Assessments Now Standard in M&A Due Diligence

AI Transforms M&A Due Diligence

Artificial intelligence has moved from experimental tool to essential infrastructure in dealmaking, fundamentally changing how investors evaluate acquisition targets and early-stage companies. According to Bain's 2026 M&A Report surveying 300 dealmakers, one in five strategic acquirers have walked away from deals specifically because of anticipated AI impacts on the target's business model. Nearly half of all technology transactions now involve companies with AI product components.

This shift has made AI risk assessment a core element of pre-acquisition reviews. PwC now includes AI risk evaluation as standard practice, while firms like Union Square Advisors have conducted AI assessments on more than 400 companies over the past two years. These assessments draw on over 2,000 data sources per company—including patent filings, customer reviews, analyst reports, and live market intelligence—to answer three fundamental questions: which companies to select, when to transact, and what monetization paths exist.

Early-Stage Investment Gets Data-Driven

The challenge intensifies at the earliest funding stages, where traditional evaluation methods break down. Companies in recent Y Combinator cohorts have grown at unprecedented rates—compounding 10% weekly for nine months—with roughly a quarter writing 95% of their code using AI. Some have crossed $10 million in revenue with teams of fewer than ten people.

Venture firms are responding with AI-powered analysis of proprietary data networks. Orange Collective, a fund backed by over 150 Y Combinator alumni and investing exclusively in AI companies from YC, deploys AI agents to scrape company profiles immediately upon appearance, generates daily AI-written digests for its network, and aggregates scoring from its 150+ limited partners who evaluate each cohort from inside. This creates a continuously improving dataset that sharpens investment decisions with each batch cycle.

Legal and Insurance Terms Evolve

M&A lawyers are rewriting standard acquisition agreements to address AI-specific risks. Buyers now require representations that models were trained on lawfully licensed data, built with disclosed open-source components, and deliver explainable, bias-tested, reproducible outputs. Because AI company value resides in models and datasets rather than just code, sellers face increased liability caps, broader indemnities, and longer survival periods.

Insurers are pulling back from certain AI deal risks. While representations-and-warranties insurance typically supports seller promises, insurers now often exclude coverage for two critical areas: whether training data was lawfully obtained and whether models will continue performing as expected. This leaves buyers to address these risks through diligence or carry them post-closing.

Major accounting firms are also deploying AI at scale. Deloitte has rolled out Claude to its 470,000 employees in Anthropic's largest enterprise deployment, while KPMG deployed the same technology to 276,000 staff and became Anthropic's preferred private equity partner.

Why it matters

The integration of AI into dealmaking represents more than workflow automation—it's reshaping fundamental risk assessment, valuation methodologies, and contractual frameworks across the M&A industry. As AI companies grow faster and operate differently than traditional software businesses, investors and advisors must develop new analytical capabilities or risk mispricing both opportunities and threats. The firms building proprietary data systems and AI-powered analysis infrastructure today are establishing competitive advantages that compound with each transaction.

Despite these technological advances, forum participants emphasized that human accountability remains paramount. Dealmaking remains a services business where responsibility for outcomes rests with people, not the systems assisting them.

These details were first reported by Gelila Bekele for Forbes, based on discussions at a data-driven dealmaking forum organized by 1BusinessWorld during New York City's tech week in June.