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 expected to cost businesses $265 billion by 2031, it’s no wonder more distributors are offering buyers a new kind of warranty: the cybersecurity warranty. Created to help mitigate the financial risks associated with cyberattacks and breaches These warranties are usually an additional benefit to cybersecurity insurance and to fill in the gaps when insurance doesn’t provide security.

However these warranties aren’t created to be equal. Certain warranties have strict terms that can cost companies lot of money to retrieve information in the event a cyber attack occurs. The stipulations could include:

This kind of warranty can be included in an IT M&A agreement to ensure that the buyer is secured from security threats and that the vendor takes steps to protect against future attacks. In addition to the normal warranties and representations in an asset purchase or stock purchase agreement, these new warranties can be bargained to address privacy issues concerns, data security, as well as other relevant issues specific to the transaction being considered.

A typical warranty will cover the cost to repair or replace hardware, the cost of IT labor, forensics and compensation for those affected by a breach. Certain warranties also cover legal expenses due to lawsuits. A more comprehensive policy could also cover lost business revenues as well as the cost of reprogramming software and the cost of repairing reputational damage caused by a security event.