What Buyers Need to Know About Acquiring AI Companies in Data-Sensitive Industries

Mergers and acquisitions (M&A) always come with risk, especially when intellectual property (IP) and sensitive data are involved. But if the company you’re acquiring develops AI tools or operates in a highly regulated industry, the risk profile changes dramatically. 

Rather than investing time and resources to build a generative AI solution from scratch, many businesses see the value in acquiring a proven product already in use within a specific industry. It’s a smart move — but only if you understand what you’re stepping into. 

Generative AI is already powering advancements in drug discovery, managing national defense operations, and supporting critical infrastructure. It’s not a passing trend—and if AI is part of a potential deal, your due diligence process needs to evolve accordingly. 

When proprietary algorithms, patient health records, government contracts, or large-scale personal data are on the table, M&A due diligence must go deeper. Whether you’re a buyer evaluating an opportunity or a founder preparing for sale, here’s what you need to know when data sensitivity becomes part of the deal. 

What Do You Need to Consider for Your Industry Regarding AI?

Regulatory Red Flags in Government and Defense Deals

If the AI company works with government agencies or defense contractors, your due diligence needs to go beyond the basics. National security concerns and federal oversight add layers of complexity to any potential acquisition. 

Before moving forward, assess: 

• Whether the company is subject to ITAR or EAR regulations

• If the transaction could trigger a CFIUS review

• How government contracts are structured, including any foreign ownership concerns

• Internal compliance programs for managing sensitive or classified data

A misstep here doesn’t just stall a deal—it could block it entirely. Federal regulators will scrutinize every detail, especially in cross-border transactions. You don’t want surprises after the ink dries. 

Read Our Blog: Software Assets in Mergers & Acquisitions 

Data Integrity in Biotech and Regulated Industries

AI companies working in biotech, pharma, or clinical research often manage sensitive datasets—from genomic profiles to clinical trial results. These sectors come with their own set of rules, particularly from the FDA. 

Due diligence should include: 

• How the company handles data integrity and accuracy

• Whether AI outputs meet FDA guidelines for ethical and valid use

• How well the company can demonstrate traceability and transparency in its models

Sloppy data practices in regulated environments aren’t just a compliance issue—they can jeopardize future research, funding, or commercial partnerships. And in a worst-case scenario, they can lead to litigation or product recalls. 

Fintech and Financial Services

In the fintech space, AI tools are being used to detect fraud, automate lending decisions, and personalize financial products, all based on sensitive personal and financial data.  

These companies are subject to strict oversight from agencies like the Consumer Financial Protection Bureau (CFPB) and must comply with regulations such as the GLBA (Gramm-Leach-Bliley Act) and state-specific financial privacy laws.  

During due diligence, buyers should evaluate how customer data is collected, stored, and shared, as well as the company’s approach to compliance reporting, algorithmic transparency, and risk modeling.  

Mismanagement of consumer financial data can result in severe penalties and damage long-term trust with both regulators and customers. 

Education and EdTech: Minors, Privacy, and AI Ethics

AI is also transforming the education sector through adaptive learning platforms and student performance analytics. But when a company handles data involving minors or educational records, it triggers another set of concerns.  

Federal laws like FERPA (Family Educational Rights and Privacy Act) and COPPA (Children’s Online Privacy Protection Act) come into play, especially if the product is used in K–12 settings.  

Buyers must assess how the company safeguards student data, obtains parental consent, and limits data sharing with third parties.  

Improper handling of education data can lead to regulatory enforcement and erode institutional partnerships — especially if AI is seen as replacing, rather than responsibly augmenting, human instruction. 

Read Our Blog: Navigating Payment Terms in Business Sales 

Privacy Laws Matter in Every Sector

Data privacy laws apply even if the company isn’t in biotech or defense. This is especially true if the AI model uses personal or health-related data. 

Your diligence process should include a review of how the company complies with the following: 

• HIPAA (if there’s any health data involved)

• GDPR (for data from the EU)

• CPRA (if they’re doing business in California)

 Missteps here can cost millions in fines or lose client trust. 

Robust Cybersecurity Considerations

For AI companies, data is the product. That makes cybersecurity a business-critical concern, not just an IT problem. 

As a buyer, you’ll want to understand: 

• What cybersecurity protocols are in place

• How the company manages vulnerabilities and responds to incidents

• Whether their proprietary IP (like algorithms) is at risk of exposure through audits, third-party vendors, or collaborations

It could be a dealbreaker if the company can’t protect its crown jewels. 

Read Our Blog: M&A Transaction Disputes and How to Handle Them 

Due Diligence is a Good Defensive Play

Purchasing companies with AI tools can be exciting, but uniquely risky when it comes to M&A. Through legal, regulatory, and security, due diligence is essential. 

At Richards Rodriguez & Skeith, our team works with buyers and sellers to identify red flags early, protect sensitive information, and align deal strategies for long-term value.  

Need help navigating a tech-heavy acquisition? At Richards Rodriguez & Skeith, our business & transaction law attorneys have decades of combined experience handling delicate situations such as M&A.  

If you’re handling an M&A transaction – or will be part of one soon – RRS may be able to help! Contact us today to find out how!