Safety Precautions During M&A – Data Security and Insurance
M&A deals always came with some risks, and those risks have changed over the years. That’s why you should always consider getting specialized insurance coverage to help you cope with potential losses.
In a world where everything is online, data security plays a critical role. Without the latest security measures, your M&A deals are under constant risk, especially if you’re dealing with tech companies.
You have to understand how the data collection process works and what you need to do to ensure that your data is safe from prying eyes. When your data is secure, you must know how to use it to improve your business.
New Laws and Regulations
Big data is one of the most critical factors for business success. Due to many data breaches and data thefts, new privacy regulations are introduced all the time. Regulations like the GDPR and the California Privacy Act are just the beginning of a long road ahead.
The problem with these regulations is that they put buyers at risk, especially when they purchase companies that don’t have the latest data security features.
Buyers are beginning to realize what’s going on, so they put extra time and effort into scanning the companies they want to acquire for data security features. Data privacy is more important now than ever. Companies think twice before buying a business because they put their entire organization at risk if the business they acquire doesn’t have the latest data security features.
The new laws make it even harder to merge businesses as they are not the same in every part of the world. All of these factors lead to a complicated process that revolves around data protection and management.
Current Regulations Promote Harsh Penalties
The European Union introduced the General Data Protection Regulation in 2018. The new regulation provides strict rules for handling personal data, and that affects the entire process from collection to storage, use, and destruction.
All companies that violate these rules face massive fines that can add up to millions of dollars. The penalty is determined by the annual revenue the company makes, which means that more prominent companies are risking the most.
Last year, Marriott International was involved in a data breach, and they ended up paying over 100 million dollars in fines. The breach included personal data of close to 340 million guests.
Upon closer inspection, the investigators were able to track the incident back to 2016, to a moment where Marriott bought the Starwood hotels group. The acquired company had a data breach in 2014, but no one was aware of that until 2018 when it was too late.
The investigation concluded that Marriott didn’t take the right security precautions during the acquisition process, so it was found guilty and had to pay a massive fine. Even though Marriott had nothing to do with the original data breach in 2014, the newly implemented laws recognized the company as the owners of Starwood hotels.
That means that Marriott lost over $100 million because of someone else’s mistakes.
Even though they were not guilty of the original data breach, they didn’t do anything to check the data security measures before buying the company. As the new owners, they had to be held accountable for the mistakes made in the past. They purchased the data along with the company, and it was their obligation to make sure it’s acquired legally and protected at all times.
Everyone knows that personal data adds value to any company, which is why corporations have to make sure that it stays safe. The new laws will punish all companies that don’t take the necessary steps to ensure data protection upon acquiring businesses.
These laws have a direct impact on all businesses in every industry the same. If your company has any online connections, you are at risk. However, blending your organization’s data security with a recently acquired business is not a good idea, either. You are risking a data breach for the entire organization, and that’s precisely where most problems start.
How Can You Protect Your Company
To make sure that everything is done right, you have to invest in solutions that will minimize the risks. Put extra effort into making sure that the business you’re buying has the security measures that line up with your standards. That includes the entire process from the online website side to ensuring that employees don’t share their access passwords with other people.
That won’t be enough, but it’s a start. You should also invest in Cyber insurance that can cover any security liability for M & A deals. The coverage has to include everything, including regulatory penalties as well as potential financial damages.
There are all kinds of security measures you can take to protect private data, but no matter how hard you try, hackers can always find new ways for data breaching.
Getting some kind of Cyber liability coverage is the way to go in these circumstances, but you should know that they are not all the same. For example, cheap versions cover only data breaches, while the policies on the expensive end cover issues like malware attacks, ransomware attacks, and electronic theft.
All of these problems could impact your company’s value if you leave it open for an attack. The price is well worth the protection you get. No matter how expensive a good policy is, it’s still much cheaper than the fines you could be facing.
Types of Insurances
Apart from getting a good Cyber Liability policy for your M&A deals, you should consider getting the following policies:
- Warranty and Identity insurance
- Tax liability insurance
- Contingent liability insurance
- Environmental insurance
- Title insurance
Cyber Liability and R&W Coverage
Cyber threats are a severe problem when acquiring a new business, which is why you must have a proper liability policy combined with your R&W policy.
That way, if a breach does happen, the insurance companies will pay you for the damages, and the R&W policy will cover everything else. Think of your Cyber Liability policy as the first line of defense that gives you more breathing room if something goes wrong. Like it or not, these are the rules of the game today, so make sure you’re in tune, or you might be risking everything you’ve achieved over the years.