While M&A deals can add value to the company’s assets, they also expose it to significant risk. Companies that fail in M&A transactions to protect information could be subject to costly fines and also lose trust in digital technology. The good thing is that a well-planned and implemented privacy due diligence process can help reduce these risks.
In the end, many M&As contain a large amount of sensitive data that can be affected by regulatory concerns and legal issues. This is especially applicable to M&As involving highly-regulated industries like finance or healthcare. In these situations, the parties may need to conduct a second review of regulatory compliance as part of the due diligence process.
Before closing, a buyer must be aware of the amount and nature of risk that comes with the transaction. This includes any sectoral regulations, such as the Gramm-Leach-Bliley Act, the Health Insurance Portability and Accountability Act or even consumer privacy laws such as the California Consumer Privacy Act. Interviewing the personnel of the target responsible for security and privacy is essential to get a true picture of their situation, which includes any policies or procedures that could be unsuitable in an M&A scenario.
In this regard, it’s important to include forward-looking covenants in the sale contract, which require sellers to improve their practices for protecting data prior to closing. This will not only ensure compliance with the law applicable to them and reduce the liability after closing and reduce the impact M&A activity will have on future data breaches.
