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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 offer buyers an entirely new type of warranty, the cybersecurity warranty. These warranties are designed to lower the financial risks that are associated with cyberattacks, and often serve as a complement to insurance. They fill in the gaps left by insurance.

However these warranties aren’t created in the same way. Certain warranties have strict terms that can cost companies a considerable amount of money to recover information in the event of a cyber attack. The stipulations can include:

This kind of warranty can be included in the technology M&A agreement to ensure that the buyer is secured from security threats and that the vendor is taking steps to avoid future attacks. In addition to the normal representations and warranties in the asset or stock purchase agreement, these warranties can be discussed to address privacy as well as data security and other relevant issues that are specific to the transaction being considered.

A typical warranty will cover the cost to repair and replace hardware, the cost of IT labor, forensics, and compensation for individuals affected by the breach. Some also cover the cost of legal costs arising from lawsuits. A more comprehensive version could include lost business revenue and the cost of reprogramming software as well as the cost of repairing reputational damage caused by an incident of security.

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