For any business contemplating a merger or acquisition (M&A), privacy due diligence is not just a recommendation—it’s a necessity. With the rise of big data and increasing regulation around data privacy, understanding a target company’s data environment has become as crucial as verifying its financial health.
In this guide, we’ll provide a comprehensive privacy due diligence checklist that will help M&A counsel ensure the data health of a potential acquisition.
Table of Contents
- Understanding Privacy Due Diligence Checklist.
- Why Privacy Due Diligence Matters
- Top 10 Privacy and Security Due Diligence Requests
- Analyzing the Due Diligence Information
- Privacy Due Diligence Post Acquisition
- Responsibilities of Lawyers in Privacy Due Diligence
- The Importance of Transparency in Privacy Due Diligence
- Problems That May Arise in Privacy Due Diligence
- Role of Technology in Privacy Due Diligence Checklist
- Conclusion
Understanding Privacy Due Diligence
Privacy due diligence is an investigative process undertaken during an M&A transaction. Its primary goal is to uncover any potential data vulnerabilities and provide a comprehensive understanding of the target company’s data environment, including how data is collected, processed, transferred, stored, and deleted.
Why Privacy Due Diligence Matters
In today’s digital world, data is a valuable asset. It can be monetized and can significantly influence a company’s worth. Therefore, understanding a company’s data environment is essential not only from a risk standpoint but also from a valuation perspective.
Data is the new cash. It has to be protected. It can’t be left unsecured.
Top 10 Privacy and Security Due Diligence Requests
During the due diligence process, it’s important to request specific information to evaluate the target company’s data environment. Here are the top ten privacy and security due diligence requests:
- Request descriptions of the security controls in place for each of the company’s data collection platforms.
- Request copies of all documented information governance guidelines and standards.
- Ask for summaries of the company’s risk assessment and risk management programs.
- Request copies of all security guidelines in connection with hiring personnel.
- Request copies of the company’s Privacy Policies.
- Ask for a description of the company’s IT Business Continuity Plan.
- Request copies of any documented physical security guidelines.
- Ask for details of each insurance policy relating to an entity.
- Request descriptions of any known event(s) which could give rise to an insurance claim as a result of a privacy or information security incident or data breach.
- Request information on claims history involving privacy, information security, or data breaches.
Analyzing the Due Diligence Information
The information produced in response to these requests will provide M&A counsel with a diagnostic picture of the overall data health of the entities subject to acquisition or merger. By collecting the information requested, the M&A team responsible for the deal will have a baseline understanding of the potential vulnerabilities present in the data environment.
Privacy Due Diligence Post Acquisition
Understanding the data environment is crucial to the post-acquisition process, during which the absorption and integration of separate data environments occur. This exercise requires knowledge sufficient to mitigate and remediate any previously identified risks.
Responsibilities of Lawyers in Privacy Due Diligence
It’s the responsibility of the lawyers on the deal to explain these vulnerabilities to the client well in advance of close. They must draft appropriate provisions in the agreement to protect the client, and help develop a potential plan for remediation of the data environment post acquisition.
The Importance of Transparency in Privacy Due Diligence
Transparency is crucial during the privacy due diligence process. Any known events that could give rise to an insurance claim as a result of a privacy or information security incident or data breach should be disclosed. This is the time for complete transparency.
Problems That May Arise in Privacy Due Diligence
Without a well-developed information governance program, locating where data resides and how it is governed within the organization can be challenging. This can add valuable time, cost, and effort in due diligence by the parties and potentially delay closing.
Role of Technology in Privacy Due Diligence
Automating the due diligence process can help overcome these challenges. For instance, DillX, a SaaS platform, automates the entire due diligence process, generating detailed DX reports with pre-verified company information and red flag alerts. By adopting such a platform, you can transform your due diligence experience.
Conclusion
Uncovering potential data vulnerabilities and understanding a company’s data environment is crucial in today’s digital world. By following this privacy due diligence checklist, M&A counsel can ensure the data health of a potential acquisition, protect their client, and facilitate a successful M&A transaction.
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