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

Data loss is expected to data safety warranty cost businesses $265 billion by 2031. It’s not surprising that more distributors provide buyers a new kind of warranty called the cybersecurity warranty. These warranties are designed to minimize the financial risks associated with cyberattacks, and often serve as a complement to insurance. They cover the gaps left by insurance.

These warranties aren’t all the same. Some have strict rules that could result in companies paying a substantial amount for data retrieval in the case of a cyber attack. The stipulations can include:

This kind of warranty can be included in a technology M&A agreement to ensure that the buyer is protected against potential security threats and that the vendor is taking steps to protect against future attacks. In addition to the normal warranties and representations contained in the asset or stock purchase agreement, these warranties can be discussed to address privacy as well as data security and other issues relevant to the deal being discussed.

A typical warranty may include the cost of fixing and replacing equipment and software, as well as the cost of forensics as well as IT labor to retrieve data, as well as the costs of compensating individuals who are affected by a breach. Some also cover the costs of legal expenses resulting from potential lawsuits. A more comprehensive version could also pay for lost revenue and the cost of programming the software, and the cost to restore reputational damage that was caused by a security incident.