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

With data loss impacting businesses every two seconds and expected to cost businesses $265 billion by 2031 It’s no wonder that more distributors are offering consumers a new kind of warranty which is called the cybersecurity warranty. These warranties are designed to lower the financial risks that are associated with cyberattacks, and they’re often a complement to insurance. They fill in the gaps that insurance doesn’t cover.

These warranties aren’t all the same. Some warranties have rigid conditions which can cost companies a lot of money to retrieve information in the event a cyber attack. These may include:

Incorporating such a warranty into a technology M&A deal is an excellent way to make sure that exchanging business documentation the buyer is adequately protected against security threats and that the vendor takes measures to prevent such attacks from happening in the future. These new warranties in addition to the usual representations and warranties clauses in an asset purchase agreement or stock purchase contract can be negotiated in a way that they address privacy, data protection, and other relevant concerns specific to the transaction.

A typical warranty will include the cost of fixing and replacing equipment and software, as well as the cost of forensics and IT labor to retrieve data, and the costs of compensating individuals impacted by a breach. Certain warranties also cover legal expenses due to lawsuits. A more comprehensive version might also cover the loss of business revenue as well as the cost of reprogramming software and the cost of repairing reputational damage caused by a security event.

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