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

With data loss affecting a business every two seconds and predicted to cost businesses $265 billion by 2031 It’s no wonder that more distributors are offering buyers a brand new type of guarantee: the cybersecurity warranty. These warranties are designed to reduce the financial risks of cyberattacks and are often used as a supplement to insurance. They fill in the gaps that insurance doesn’t cover.

However these warranties aren’t created in the same way. Certain warranties have strict conditions which can cost companies a amount of money to retrieve information in the event a cyber attack occurs. Those stipulations may include:

Incorporating this type of warranty into an M&A deal is an excellent way to ensure that the buyer has adequate protections against security threats that could be a threat, and that the vendor will take steps to prevent attacks like this from happening in the near future. These new warranties in addition to the standard representations and warranty clauses in an asset purchase agreement or stock purchase agreement, could be negotiated so that they address privacy, data protection, and other relevant concerns specific to the deal.

A typical warranty covers the cost to repair or replace equipment, as well as the cost of IT labor, forensics, and also compensation for people affected by the breach. Some also cover the costs of legal costs arising from lawsuits. A more comprehensive version could include lost business revenue and the cost of reprogramming software and cost to repair reputational damage resulting from a security event.