M&A can boost the value of a company However, they also expose them risks. Companies that fail in M&A transactions to protect data could face expensive fines and lose trust in digital media. The good part is that a well-planned and implemented privacy due diligence process can help reduce these risks.
In the end, many M&As involve a significant amount of sensitive data that could be impacted by regulatory concerns and legal issues. This is especially applicable to M&As that involve highly-regulated fields such as healthcare or finance. In those instances the parties may have to conduct a second review of regulatory compliance as part of the due diligence process.
The data of the target may be subject to regulations specific to the sector like the Gramm-Leach-Bliley Act or the Health Insurance Portability and Accountability Act or general consumer privacy laws, such as the California Consumer Privacy Act, the buyer must be aware of the level of compliance and risk involved in the transaction prior to closing. Interviewing the target’s personnel responsible for security and privacy is crucial to get an accurate picture of their current situation, including any policies or procedures that could be unsuitable in an M&A scenario.
As a result, it’s essential to include forward-looking covenants in the sale contract that require the sellers to improve their data protection practices prior to closing. This will not only ensure compliance with applicable law, but also reduce the liability after closing and reduce the impact M&A activity will have on the likelihood of data breaches in the future.