third-party tools used by the target. Other State Laws and a Federal Order In the midst of the state efforts to regulate AI, in December, President Trump issued an executive order directing White House advisors to engage Congress on developing federal legislation to establish a “uniform Federal policy framework for AI” that would preempt state AI laws.10 The executive order also instructs the U.S. Attorney General to create an “AI Litigation Task Force” to challenge state AI laws that are inconsistent with the policy of U.S. “global AI dominance.” The executive order has not preempted or staved off all state regulations,11 and federal legislation has yet to materialize. In the meantime, we expect buyers to continue to scrutinize compliance with state AI laws by AI developers and deployers, as well as U.S. federal and non-U.S. requirements. Impact on Diligence and Deal Terms The integration of AI into core business functions and customer-facing offerings, combined with growing privacy, employment, antitrust, and other regulatory risks, is reshaping M&A diligence and deal terms. Buyers increasingly request information about how 10 See MoFo Client Alert, Executive Order Takes Aim at State AI Laws, Dec. 13, 2025, mofo.com/resources/insights/251213-executive-order-state-ai-laws. 11 For example, see New York’s recently enacted RAISE Act regulating frontier AI models, discussed in MoFo’s Jan. 5, 2026, client alert, mofo.com/resources/insights/260105-new-york-enacts-the-raise-act-regulating-frontier-ai-models. a target uses AI and data in connection with AI and about the target’s AI governance and compliance. Buyers also increasingly perform diligence deep dives where unauthorized or high‑risk AI use is identified. AI diligence now commonly addresses the existence of AI governance and policies, AI contract terms, tool inventories, data flows, AI risk assessments and bias audits, and vendor reliance. Buyers are also tailoring reps and warranties to address AI usage and seeking indemnities for potential AI-related exposures. Representation and warranty insurance underwriters similarly are requesting more detail on data sourcing, model governance, and internal controls, and some carriers are beginning to consider AIspecific exclusions. Buyers and potential targets must also consider the regulatory and other implications of companies’ expanded internal deployment of AI. 2025 M&A Annual Review 41
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