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 projected to cost businesses $265 billion by 2031 It’s no wonder that more distributors are offering buyers a new kind of warranty called the cybersecurity warranty. Designed to mitigate the monetary threats posed by cyberattacks and breaches, these warranties are typically a complement to cybersecurity insurance. They can help to fill in the gaps when insurance doesn’t provide protection.
These warranties are not all the same. Many experience rigid stipulations that could result in companies paying an enormous amount for information retrieval in the case of a cyber attack. These can include:
This kind of warranty can be included in the technology M&A agreement to ensure that the buyer is protected from potential security threats and that the vendor is taking steps to prevent future attacks. These new warranties are in addition to the standard representations and warranty clauses in an asset purchase agreement or stock purchase agreement, can be negotiated in a way that they cover privacy, data protection and other issues specific to the deal.
A typical warranty covers the cost of repair and replace equipment, as well as the cost of forensics, IT labor, and compensation for those affected by the breach. Some also cover the cost of legal fees resulting from lawsuits. A more comprehensive version may also be able to cover the loss of revenue and the cost of reprogramming the software, and the cost to repair reputational damage resulting from an incident involving security.