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

Data loss is estimated to cost businesses $265 billion by 2031. It’s not surprising that more distributors offer buyers a new type of warranty, the cybersecurity warranty. These warranties are designed to help reduce the financial risks related to cyberattacks, and are often used as a supplement to insurance. They cover the gaps that insurance doesn’t cover.

However, these warranties aren’t all created equal. Many experience rigid stipulations which could lead to companies paying an enormous amount for information retrieval in the event of a cyber invasion. These may include:

Incorporating such a warranty into a technology M&A deal can be an excellent way to make sure that the buyer has adequate protections against security threats and that the vendor takes measures to prevent such attacks from occurring in the future. In addition to the usual warranties and representations in an asset or stock purchase agreement, these warranties can be made to address privacy as well as data security and other pertinent issues that relate to the deal at hand.

A typical warranty may include the cost of fixing and replacing equipment, the cost of forensics and IT work to recover data, and the costs of compensating individuals affected by breaches. Certain warranties also cover legal costs that could arise from lawsuits. A more comprehensive version might also cover lost revenue and the cost of programming the software and the expense to restore reputational damage resulting from a security incident.

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