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

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Data loss is estimated to cost businesses $265 billion by 2031. It’s no surprise that more distributors offer customers the latest type of warranty called the cybersecurity warranty. It is designed to reduce the financial risks associated with cyberattacks as well as breaches, these warranties are typically an addition to cybersecurity insurance, and can to fill in the gaps that insurance cannot provide security.

These warranties aren’t all the same. Some have strict stipulations that could result in companies paying a big price tag for data retrieval in the event of a cyberattack. These may include:

Incorporating this type warranty into an M&A deal can be an excellent way to ensure that the buyer is adequately protected against security threats and that the vendor takes steps to stop such attacks from occurring in the future. In addition to the normal warranties and representations contained in an asset purchase agreement, these warranties can be discussed to address privacy security, data security, and other pertinent issues that relate to the deal at hand.

A typical warranty will cover the cost to repair or replace hardware, the cost of IT labor, forensics, and the compensation of those affected by a breach. Some warranties also cover legal expenses caused by lawsuits. A more comprehensive version might also cover lost business revenue, the costs of reprogramming software as well as the cost of repairing reputational damage caused by a security event.

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