M&A can boost the value of a business however, they can also expose them to significant risks. Businesses that fail to comply with M&A transactions to safeguard their data can face costly penalties and lose trust in the digital world. The good thing is that a well-planned and implemented privacy due diligence process can help to reduce the risks.
In the end, many M&As involve a lot of sensitive information that could be impacted by regulatory issues and legal issues. This is especially relevant for M&As that involve highly-regulated industries such as healthcare and finance. In such cases parties could need to conduct an additional review of compliance with regulatory requirements as part of the due diligence process.
Before closing, a buyer must understand the extent and type of risk associated with the transaction. This includes any sectoral regulations like the Gramm-Leach-Bliley Act, the Health Insurance Portability and Accountability Act or even consumer privacy laws, such as the California Consumer Privacy Act. It’s important to interview those at the company that are accountable for privacy and data security to get a complete picture of their situation, including a look at any policies or procedures that could be problematic in a M&A scenario.
It is important to include in the contract of sale forward-looking provisions which require sellers to enhance their data protection policies before closing. This will not only ensure compliance with applicable laws and regulations, but it’s also an excellent way to minimize post-closing liabilities and mitigate the impact of M&A activity on the possibility of data breaches in the future.