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 predicted to cost businesses $265 billion by 2031 It’s no wonder that more distributors are offering consumers the latest type of warranty that’s called the cybersecurity guarantee. These warranties are designed to lower the financial risk that are associated with cyberattacks, and are often used as a supplement to insurance. They fill in the gaps left by insurance.

However, these warranties aren’t all made to be equal. Some have strict stipulations that could result in companies paying a big price tag for information retrieval in the event of a cyber invasion. The stipulations could include:

This type of warranty can be included in the technology M&A agreement to ensure that the buyer is adequately protected against potential security threats and that the vendor takes appropriate steps to prevent future attacks. In addition to the usual warranties and representations that are included in an asset purchase or stock purchase agreement, these warranties can be negotiated to address privacy as well as data security and other relevant issues that are specific to the transaction being considered.

A typical warranty will cover the cost to repair or replace equipment, as well as IT labor, forensics, and compensation for individuals affected by the breach. Some also cover the cost of legal fees resulting from potential lawsuits. A more comprehensive version might include lost business revenue, the costs of reprogramming software, and the cost to repair reputational damage that results from an incident of security.

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