Employment

DEI-related diligence in US transactions

By: Julie Franki and James M. Rusert

Executive Order 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” and subsequent guidance from the Department of Justice (DOJ) and Equal Employment Opportunity Commission (EEOC), have raised new questions regarding the treatment of diversity, equity, and inclusion (DEI) programs in the context of mergers and acquisitions (M&A). During diligence, buyers may consider evaluating a seller’s DEI initiatives to assess potential regulatory exposure and inform post-closing decisions about whether – and how – to continue such programs. Likewise, sellers may proactively review their DEI policies and practices ahead of a transaction to ensure compliance and mitigate risk. For more information regarding Executive Orders related to DEI programs, please read our alert.

Executive compensation and equity

Key considerations for post-closing employee compensation and benefit continuation

By: Austin Vincenzini and Keith Ranta

Addressing compensation, benefits, and termination protections for continuing employees post-transaction is often a key element in negotiating a company sale. The significance of a continuation covenant varies based on the type of transaction and centrality of the in-scope workforce to the particular deal. For sellers, the continuation covenant is an opportunity to provide continuing employees stability regarding their go-forward compensation, benefits, and termination protections for a period following the transaction – most commonly, for the one-year period following the close. For buyers, the continuation covenant can help demonstrate a commitment to continuing employees, engender goodwill, and minimize attrition. While primarily a business matter, continuation covenants typically include market compensation, benefits, and termination protection standards, along with exclusions that clarify the covenant’s practical implications and the parties’ legal rights and obligations. Companies are encouraged to consider the treatment of continuing employee compensation, benefits, and termination protections early in the transaction process, particularly if buyers and/or sellers have strong business concerns related to these arrangements.

Health and welfare

The impact of ACA assessments on purchase price

By: Erin Sweeney

The Affordable Care Act (ACA) continues to be a topic of interest to both buyers and sellers, including in light of recent litigation.  An April 2025 court district court case called into question whether certain ACA assessments issued by the Internal Revenue Service (IRS) are enforceable.  Central to the case was whether the employer had received a 1411 certification from the Department of Health and Human Services (HHS). In the M&A context, buyers are encouraged to consider requesting 1411 certifications in diligence to evaluate whether any assessments paid by the seller may be eligible for refunds from the IRS.  Similarly, before taking a seller to market, an evaluation of whether the seller is entitled to a refund from the IRS for an assessment previously paid could allow for a more accurate purchase price projection.

Intellectual property and technology

Key AI considerations when conducting IP diligence

By: Bill Bartow

Artificial Intelligence (AI) has become a key element of intellectual property (IP) diligence in transactions. In the merger and acquisition context, buyers are encouraged to conduct legal due diligence into a target company’s use of AI tools and technologies to ensure they are not purchasing any liabilities and that the target’s intellectual property is properly protected. Companies may consider:

• The types of AI the target is using (and how they are using it)
• How the AI is trained
• Rights to training data
• Rights to any AI-generated output
• Related IP infringement risks
• The input data being used in connection with the AI

Further, businesses are encouraged to ensure the target has secured proper rights to use the underlying input data in its current manner of use – and evaluate the buyer’s intended uses of the technology after the acquisition.

A target company’s use of AI technologies also may implicate cybersecurity, data privacy, and regulatory compliance risks. Buyers are encouraged to conduct sufficient AI due diligence and include AI-related protections in transaction agreements.

Tax

Tax indemnification aspects in M&A transactions

By: Neil Balmert

Over the past three years, more than 85 percent of M&A transactions included a standalone tax indemnity. Taxes were also the most frequent post-closing claim for indemnification, with approximately 35 percent of claims for breaches of representations and warranties relating to taxes. In most of these transactions, taxes were also carved out from a deductible or threshold for claims, meaning they were indemnified from the first dollar of damages. Additionally, in over 80 percent of M&A transactions, the limit on the sellers’ liability for pre-closing tax liabilities was the purchase price. Buyers are encouraged to carefully consider their rights to be indemnified for pre-closing taxes under the applicable provisions of the purchase agreement or through representation and warranty insurance.