How Data Privacy Laws Can Affect Tech M&A

How Data Privacy Laws Can Affect Tech M&A

Over the last decade, data privacy regulations have impacted the operation of companies across the globe, particularly in the technology sector. Given that mergers and acquisitions (M&A) involve the swapping of proprietary technology, customer data, and other sensitive information, data privacy laws have taken center stage in this area of business. In this blog post, we explore how data privacy laws affect tech M&A, and the importance of strategizing around legal compliance when buying or selling a business. 


  1. Understanding Data Privacy Laws:

In the technology industry, customer data is a common asset and the protection of this data is vital for any company. Many countries have implemented data privacy laws to regulate how organizations handle and process personal information. Companies that process data in violation of data privacy laws face hefty fines and penalties. As a result, acquiring companies must pay careful attention to lawsuits, regulatory scrutiny, and reputational damages that may arise from an acquisition.


  1. Due Diligence:

During the M&A process, due diligence is essential to identify data privacy issues early on. Both buyers and sellers should ensure that privacy assessments are done before entering into a deal. A comprehensive privacy assessment includes understanding the target company’s data collection practices, reviewing their privacy policies and ensuring that the company is in compliance with relevant privacy regulations, such as GDPR, CCPA, PIPEDA, HIPAA, etc. It’s essential to understand the nature of the data being exchanged and what needs protecting.


  1. Dealing with Cross-Border M&A:

Data privacy laws can complicate cross-border M&A by making it difficult to transfer data across international borders without violating confidentiality agreements or privacy laws. Extra care must be taken when acquiring companies that collect and store data in different countries, ensuring each jurisdiction’s privacy regulations are taken into account during the acquisition.


  1. Risk and Compliance Management:

The risk of non-compliance is greater in tech M&A, and it’s crucial to manage it effectively. Ultimately, risk management is about minimizing risks and ensuring compliance with data privacy laws and regulations. It’s essential to hire legal counsel that can provide guidance and ensure compliance measures are up to date. Companies must also perform due diligence when acquiring third-party vendors or service providers to verify their adherence to data privacy regulations.


  1. Exit Planning:

Selling a technology business also involves considerations of data privacy compliance management. Establishing baseline organization controls to mitigate data privacy risks early on could save time and effort in the long term. Sellers should be prepared to provide the relevant due diligence materials pertaining to data privacy compliance, and Buyers should be prepared to ask for those materials. Leaving data privacy compliance to chance is too risky.


Be proactive about data privacy

In conclusion, data privacy has become an essential factor in Tech M&A deals, and this is unlikely to change in the future. Organizations planning to acquire or sell a tech company must account for privacy regulations and assess the target company’s information risk early in the M&A process. By conducting proper due diligence, companies can avoid unwanted fines, litigation, or damage to their reputation. Legal counsel should be consulted throughout the entire acquisition process to ensure compliance with data privacy laws and regulations. The bottom line is that proactively addressing data privacy in M&A planning will reap benefits in the long run.