While M&A deals can add value to a company’s assets, they also expose it risk. Companies that fail to protect data in M&A deals may be subject to costly penalties and a loss of trust in the digital world. A well-planned, properly implemented privacy due diligence can help reduce these risks.

Many M&As are defined by the presence of sensitive data, which could be affected by legal and regulatory issues. This is particularly true for M&As involving highly-regulated industries such as finance or healthcare. In those situations the parties may have 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 involved with the transaction. This includes any sectoral regulations, such as 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 is essential to speak with the personnel of the target company who are accountable for privacy and data security to get an accurate picture of their status, including the details of any policies and procedures that could pose a problem in a M&A scenario.

As a result, it’s imperative to include forward-looking provisions in the sale contract, which require the sellers to improve their data protection practices pre-closing. This will not only help ensure compliance with applicable laws, but it’s also an effective way to cut down on post-closing liability and limit the impact of M&A activities on the possibility of data breaches in the future.