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 provide buyers a new kind of warranty called the cybersecurity warranty. These warranties are designed to help reduce the financial risk 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. Certain warranties have strict conditions that can cost companies considerable amount of money to recover information in the event a cyber attack occurs. These may 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 takes steps to prevent future attacks. These new warranties in addition to the usual representations and warranties clauses in an asset purchase agreement or stock purchase contract can be negotiated in a way that they deal with privacy, data security, and other relevant concerns specific to the deal.

A typical warranty may include the cost of fixing and replacing equipment as well as the cost of forensics or IT labor to retrieve data, and the costs of compensating those who are affected by a breach. Some also cover the cost of legal costs arising from potential lawsuits. A more comprehensive plan could include lost business revenue, the costs of reprogramming software as well as the cost to repair reputational damage caused by an incident of security.

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