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

Data loss is expected to cost businesses $265 billion by 2031. It’s no surprise that more distributors offer buyers a new type of warranty, the cybersecurity warranty. These warranties are designed to minimize the financial risks associated with cyberattacks, and are often used as a supplement to insurance. They cover the gaps that insurance doesn’t cover.

These warranties aren’t all the same. Some have strict rules that can result in companies having to pay a big price tag for data retrieval in the event of a cyber invasion. These may include:

Incorporating this type of warranty into an M&A deal is a great way to ensure the buyer has adequate protections against potential security threats, and that the vendor takes measures to prevent such attacks from happening in the future. In addition to the usual representations and warranties in an asset purchase or stock purchase agreement, these new warranties can be discussed to address privacy security, data security, and other pertinent issues that relate to the deal at hand.

A typical warranty could include the cost of fixing and replacing hardware and software, as well as the cost of forensics and IT work to retrieve data, and the costs of compensating those affected by a breach. Some warranties also cover legal costs resulting from possible lawsuits. A more comprehensive plan may also provide compensation for lost revenue and the cost of programming the software and the cost to repair reputational damage caused by security incidents.

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