Privacy and Data Security in M&A Transactions: Five Legal Requirements and Practical Deal Considerations

Privacy and data security have become central considerations in mergers and acquisitions, reflecting both regulatory expansion and the growing role of data as a core business asset. What was once a niche diligence topic now routinely sits alongside intellectual property and employment as a key risk area. Failures in this space can expose buyers to regulatory investigations, class actions, and operational disruption, while restrictions on data use can undermine the commercial rationale for a transaction. At the same time, the act of sharing data during diligence and integration can itself raise compliance issues.

Against this backdrop, deal teams increasingly need a structured approach to identifying and addressing privacy and cybersecurity risks. This Insight outlines five core legal requirements that should frame diligence and transaction planning, followed by practical considerations for implementing privacy and security protections in deal execution.

1. SECTOR-SPECIFIC PRIVACY LAWS DRIVE THRESHOLD RISK ASSESSMENT

The US privacy framework remains fragmented, relying on sector-specific regulation rather than a single comprehensive statute. This creates both flexibility and complexity for dealmakers evaluating compliance risk.

At a high level, privacy exposure in transactions often concentrates in the following key categories:

• Financial services data, governed by statutes such as the Gramm-Leach-Bliley Act and the Fair Credit Reporting Act
• Healthcare information subject to HIPAA and related laws
• Children’s data regulated under the Children’s Online Privacy Protection Act and education records under the Family Educational Rights and Privacy Act
• Consumer data subject to state-level privacy regimes, most notably California’s Consumer Privacy Act and analogous statutes in other states
• Consumer marketing activities, including telemarketing and text messaging
• Biometric data, which can carry heightened statutory liability in certain jurisdictions

California’s framework has become particularly influential, applying broadly to businesses meeting certain thresholds while granting individuals rights over their personal information and imposing notice and contractual obligations on companies. Other states have adopted similar laws, though typically with a narrower scope, contributing to a patchwork regulatory environment that can be difficult to map in multijurisdictional deals.

For acquirers, early identification of these sectoral triggers is critical. The presence of regulated data sets can materially affect valuation, integration strategy, and ongoing compliance obligations.

2. PRIVACY POLICIES FUNCTION AS BINDING COMMITMENTS

Privacy policies serve as more than disclosure documents. They operate as enforceable representations about how a company collects, uses, and shares personal information. Regulators have consistently treated deviations from stated practices as potential unfair or deceptive conduct.

In diligence, privacy policies provide a window into both compliance maturity and potential risk. Key considerations include:

• Whether the policy is current and reflects recent regulatory developments
• The scope of data collection and stated purposes for use
• Commitments regarding data sharing, sales, or restrictions
• Representations about security practices
• The presence of “transfer of assets” language permitting data transfers in connection with corporate transactions

The absence of transaction-related transfer language can create legal constraints on sharing personal data with a buyer, potentially requiring additional notices or consent mechanisms.

Deal teams should also review broader public-facing statements, including website disclosures and marketing materials, which may create additional commitments beyond the formal privacy policy.

3. DATA SECURITY REQUIREMENTS ESTABLISH THE BASELINE FOR OPERATIONAL RISK

Most US privacy laws impose a general obligation to implement reasonable security measures. While the standard is not prescriptive, it is informed by regulatory expectations, contractual commitments, and widely recognized industry frameworks such as NIST, CIS, and ISO.

In practice, diligence focuses on whether the target has implemented core security controls, including:

• Written information security and incident response plans
• Strong authentication and access controls
• Encryption of sensitive data in transit and at rest
• Monitoring, logging, vulnerability testing, and patch management
• Employee training and awareness programs
• Vendor management processes governing third-party access to data

These elements serve as indicators of overall cybersecurity maturity. Deficiencies may not preclude a transaction but can inform pricing adjustments, indemnity provisions, or post-closing remediation plans.

4. BREACH NOTIFICATION OBLIGATIONS SHAPE LIABILITY EXPOSURE

All 50 states and the District of Columbia impose breach notification requirements, typically triggered by unauthorized access to certain categories of personal information. These laws vary in scope, timing, and regulatory reporting obligations but collectively establish a baseline expectation for incident response.

From a transactional perspective, the key issues are not simply whether breaches have occurred but how they were handled. Relevant diligence questions include the following:

• Whether incidents were identified and investigated promptly
• Whether notifications were made to affected individuals and regulators as required
• Whether remediation steps were implemented to address root causes
• Whether any related litigation or regulatory inquiries are pending

A history of incidents is not uncommon and does not necessarily derail a transaction. However, inadequate detection, delayed response, or incomplete disclosure may signal broader governance and control failures.

5. CROSS-BORDER DATA TRANSFERS INTRODUCE STRUCTURAL CONSTRAINTS

International data flows can present significant legal barriers in cross-border transactions. The EU General Data Protection Regulation and similar laws in other jurisdictions restrict transfers of personal data to countries that lack adequate protection unless specific safeguards are in place.

Common transfer mechanisms include the following:

• Standard contractual clauses and related risk assessments
• Participation in approved data transfer frameworks
• Binding corporate rules for intra-group transfers
• Limited reliance on consent or necessity-based exceptions

Restrictions may also arise in other jurisdictions, including China, where outbound transfers can be subject to regulatory approval or limitations. These considerations affect both pre-closing diligence, where data may need to be shared across borders, and post-closing integration, where data consolidation is often a key objective.

IMPLEMENTING PRIVACY AND SECURITY IN M&A TRANSACTIONS

Translating these legal requirements into deal execution requires coordination across diligence, contractual protections, and post-closing planning.

Diligence: Prioritizing Risk-Based Review

Buyers typically begin with a risk-based assessment, focusing on the following:

• Whether the target operates in regulated sectors or handles sensitive data
• The adequacy of privacy policies and contractual commitments
• The maturity of security controls and governance frameworks
• The history and handling of data breaches
• The presence of cross-border data flows and transfer mechanisms

This assessment informs the scope of deeper diligence and helps identify issues that may require remediation or negotiation.

Representations and Warranties: Allocating Risk

Transaction documents increasingly include dedicated privacy and cybersecurity representations addressing the following:

• Compliance with applicable privacy and data protection laws
• Absence of undisclosed data breaches or security incidents
• Lack of pending claims or investigations related to data practices
• Implementation of reasonable security measures
• Compliance of the transaction itself with applicable data protection requirements

In certain cases, parties may also negotiate specific indemnities for identified risks or vulnerabilities.

Transition Services and Integration Planning

Post-closing integration often involves ongoing data sharing between buyer and seller, particularly where systems and personnel are not immediately consolidated. Transition services agreements can govern these arrangements, but they must be structured with privacy compliance considerations in mind, including the following:

• Identifying sensitive data sets that will be shared during the transition
• Implementing appropriate data transfer agreements or processing terms
• Applying technical safeguards such as encryption or access controls
• Aligning practices with applicable cross-border transfer requirements

Early planning can reduce the risk of delays or compliance gaps during integration.

KEY TAKEAWAYS FOR DEALMAKERS

Privacy and data security risks are now integral to M&A strategy rather than ancillary considerations. Deal teams should approach these issues with the same rigor applied to other core diligence areas. The following practical points emerge:

• Early issue spotting is critical. Sector-specific laws and data types can quickly elevate risk profiles.
• Privacy policies and public statements can create binding commitments that affect deal structure and integration.
• Security maturity and incident response capabilities often matter more than the mere existence of past breaches.
• Cross-border data restrictions can constrain both diligence and post-closing operations if not addressed upfront.
• Contractual protections should reflect identified risks, but operational planning remains essential to managing exposure.

LOOKING AHEAD

As data continues to underpin business models across industries, regulatory expectations around privacy and cybersecurity are likely to expand. At the same time, enforcement activity at both federal and state levels continues to increase, particularly in the absence of a unified US privacy regime.

For dealmakers, the trajectory is clear. Privacy and data security will remain a central component of transaction risk assessment and execution, requiring closer integration between legal, compliance, and business teams throughout the deal lifecycle.