How to Negotiate a Cybersecurity and Privacy Data Safety Warranty in a Technology M&A Deal

Data loss is a problem for businesses every two seconds and projected to cost businesses $265 billion by 2031 So, it’s not surprising that more distributors are offering customers a brand new type of guarantee: the cybersecurity warranty. These warranties are designed to help reduce the financial risks of cyberattacks and are often used as a supplement to insurance. They cover the gaps left by insurance.

However, these warranties aren’t all made equal. There are many that have strict terms and conditions that may keep companies paying the highest price for information retrieval in the event of a cyber invasion. These may include:

Incorporating such a warranty into an M&A deal can be an excellent way to ensure that the buyer has adequate protections against security risks that could arise, and that the vendor takes steps to prevent such attacks from happening in the future. In addition to the usual warranties and representations that are included in an asset purchase agreement, these warranties can be bargained to address privacy issues, data security, and other pertinent issues that relate to the transaction at hand.

A typical warranty may include the cost of repairing and replacing hardware and equipment, the cost of forensics or IT labor to recover data, and the costs of compensating individuals affected by a breach. Certain warranties also cover legal expenses due to lawsuits. A more comprehensive version might also cover lost business revenues as well as the cost of reprogramming software as well as the cost of repairing reputational damage that results from an incident of security.

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