The risks of shadow AI in M&A transactions

In the article, the CDH experts note that in technology-focused M&A transactions, a growing portion of enterprise value linked to material data now resides in AI models rather than traditional source code. This evolution presents new complexities for buyers conducting due diligence investigations. “Shadow AI” tools and models developed and deployed outside formal governance structures pose particular risks, with potential implications for valuation, regulatory compliance, and post-closing integration.

Tayyibah, Sadia, and Izabella explain that “Shadow AI” refers to AI models, scripts, or datasets created or implemented by employees without formal approval or oversight. These tools are often undocumented, poorly controlled, and disconnected from enterprise risk management frameworks.

They explain that while such initiatives may begin as informal experiments or efficiency-driven solutions, they can introduce significant technical, intellectual property, data protection, and regulatory risks, all of which must be carefully assessed during the transaction process.

​Click here https://www.dealmakerssouthafrica.com/dm-annual-2025-the-risk-of-shadow-ai to read more.