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

Data loss is a problem for a business every two seconds and projected to cost businesses $265 billion by 2031 It’s no wonder that more distributors are offering customers an entirely new type of warranty which is called the cybersecurity warranty. These warranties are designed to lower the financial risks related to cyberattacks, and often serve as a complement to insurance. They cover the gaps that insurance doesn’t cover.

However, these warranties aren’t all created equally. Certain warranties come with strict terms which can cost companies a lot of money to retrieve information in the event of a cyber attack occurs. These may include:

Incorporating this type warranty into an M&A deal can be an excellent way to make sure that the buyer has adequate protections against security risks that could arise, and that the vendor will take steps to prevent attacks like this from happening in the near future. In addition to the typical warranties and representations in an asset purchase agreement, these new warranties can be made to address privacy as well as data security and other relevant issues specific to the deal being discussed.

A typical warranty can include the cost of repairing and replacing hardware and software, as well as the cost of forensics or IT labor to retrieve data, and the costs of compensating individuals affected by breaches. Some warranties also cover legal expenses that could arise from lawsuits. A more comprehensive version might also provide compensation for lost revenue and the cost of reprogramming the software and also the cost to restore reputational damage resulting from an incident involving security.

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