The Truth About Data Safety Warranties in Technology M&A

By: | Tags: | Comments: 0 | April 14th, 2024

A warranty is a representation from a manufacturer or seller that the item purchased is free from defects or flaws for a certain period of time. In the context of M&As in technology, warranties are often used to manage cybersecurity and data availability risks.

With ransomware threats requiring to hit a company every two seconds, and projected to expense businesses $265 billion in 2031, it’s not a surprise that more distributors are offering their customers with a new sort of guarantee: a data safety warranty. These guarantees help reduce the economic risk associated cyberattacks by transferring legal responsibility to the vendor. They are typically offered as a supplement to cybersecurity insurance to fill in the gaps where coverage might not be sufficient.

The actual details of a security guarantee vary in a variety of ways, but they generally contain a shortage of revenue for business along with additional costs incurred and reputational damage caused by the breach. They may also contain policies meant for legal responsibility, that covers the cost of letting people affected by an attack know as well as any fines or charges received from lawsuits that could be filed.

Although the idea behind a data safety warranty is good, a majority of them have serious shortcomings. Consider the example of Rubrik which provides a “Recovery Incident Warranty.” The warranty covers for what they call “Recovery Incident expenses.” But it doesn’t mean that your employees are getting compensated for the time they spent on a recovery event. Rubrik will only pay only if they have receipts of the expenses. This is a little red signal.

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