Andréa Sumé

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

Data loss is expected to cost businesses $265 Billion by 2031. It’s no surprise that more distributors provide buyers a new kind of warranty called the cybersecurity warranty. It is designed to reduce the financial threats posed by cyberattacks and breaches, these warranties are typically a complement to cybersecurity insurance and to fill in the gaps when insurance does not provide security.

These warranties aren’t all the same. Certain warranties have strict terms that can cost companies a lot of money to retrieve information in the event a cyber attack occurs. These may include:

This kind of warranty could be included in an IT M&A agreement to ensure that the buyer is protected from potential security threats and that the vendor is taking steps to protect against future attacks. In addition to the usual warranties and representations in an asset purchase or stock purchase agreement, these warranties can be made to address privacy, data security, and other pertinent issues that relate to the transaction at hand.

A typical warranty covers the cost to repair and replace hardware, the cost of forensics, IT labor, and compensation for those affected by the breach. Some warranties also cover legal expenses that could arise from lawsuits. A more comprehensive plan could also cover the loss of business revenue, the costs of reprogramming software as well as the cost of repairing reputational damage resulting from a security event.

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