Published on
May 5, 2026
How Privacy by Design Impacts M&A Deals
Embed privacy into deals to avoid liabilities, speed due diligence, and protect valuation in M&A transactions.
When companies merge or are acquired, privacy risks can significantly affect deal value, timelines, and liabilities. Privacy by Design integrates privacy into systems and processes from the start, helping companies avoid costly issues during mergers and acquisitions (M&A). Here's what you need to know:
- Privacy risks in M&A: Buyers can inherit liabilities like GDPR fines or compliance gaps, as seen in cases like Marriott's acquisition of Starwood, which led to a massive data breach liability.
- Due diligence challenges: Without privacy safeguards, sharing data during due diligence can violate laws or delay the process.
- Post-acquisition hurdles: Poor privacy practices slow integration, increase costs, and expose companies to legal risks.
Privacy by Design M&A Risk Framework: 3 Critical Stages
Data Privacy in M&A: Navigating Risks from Diligence to Integration
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Privacy Risks in M&A Without Privacy by Design
When companies neglect to embed privacy into their operations from the outset, mergers and acquisitions (M&A) can hit significant roadblocks. These issues can derail deals, create long-term liabilities, and lead to costly fixes. From restricted access to critical data during due diligence to inheriting hidden vulnerabilities, the absence of proactive privacy measures can cause serious complications.
Data Sharing Limitations During Due Diligence
A lack of privacy safeguards can turn data sharing during due diligence into a legal minefield. In some cases, sharing sensitive information before the deal is finalized may even breach privacy laws. For instance, under Canadian privacy laws like PIPEDA, parties must establish specific agreements - such as privacy-focused non-disclosure agreements - before data can be exchanged [4].
Failing to secure these agreements early can grind the due diligence process to a halt. This creates a frustrating paradox: buyers can't access the necessary data to evaluate the deal without these agreements, yet those agreements depend on disclosing certain information. Without resolution, this impasse can jeopardize the entire transaction.
Exposure to Privacy Liabilities
When privacy isn't prioritized, buyers risk inheriting more than just assets - they also take on the target company's privacy challenges. This can lead to severe legal and financial consequences. A notable example is the Marriott-Starwood acquisition. After acquiring Starwood in 2016, Marriott discovered a data breach that had been active since 2014, exposing 339 million records. Despite the breach originating before the acquisition, Marriott was held accountable by the Office of the Privacy Commissioner of Canada for Starwood's pre-existing vulnerabilities [4].
As privacy experts Jasmine Samra and Sara Josselyn from Gowling WLG emphasize:
In today's environment, privacy is not a box to check - it is a material risk that must be proactively assessed and addressed [4].
The financial fallout can be massive. For example, under Quebec's Law 25, penalties for privacy violations can reach $10 million or 2% of worldwide turnover, while serious infractions can climb to $25 million or 4% of worldwide turnover - whichever is higher [4]. Beyond regulatory fines, companies face the growing threat of litigation. Laws like the California Consumer Privacy Act (CCPA) and the California Invasion of Privacy Act (CIPA) are increasingly being used to target companies, particularly for non-compliant tools like chatbots, session replay software, or tracking mechanisms [3]. These issues often lead to class-action lawsuits, sometimes just months after an acquisition.
Post-Acquisition Integration Challenges
When Privacy by Design is absent, integrating the acquired company's systems can be a slow and risky process. Without embedded privacy practices, buyers are often forced to keep the target's systems isolated until rigorous security audits and testing are completed [4]. This isolation delays operational synergies and complicates the integration timeline.
Eric Chow from Foley & Lardner LLP highlights the risks:
The risks of foregoing this step can have catastrophic results down the line if problems are unearthed once it's too late [3].
Another hurdle is poor data mapping. Without a clear understanding of how personal data flows through the acquired company, consolidating data assets becomes a drawn-out and complex task [6]. This lack of visibility can further delay integration and reduce the overall value of the deal.
How Privacy by Design Improves Due Diligence
Building privacy considerations into processes from the beginning makes due diligence smoother, faster, and less costly. Instead of leaving buyers to gather compliance details from scratch, companies with strong Privacy by Design practices can provide clear, well-organized documentation. This approach allows for more efficient privacy assessments before any data is exchanged, reducing potential risks.
Privacy Assessments Before Data Sharing
Conducting privacy assessments before sharing data is critical to avoid taking on hidden liabilities. These evaluations help uncover underlying issues that might not show up in financial reports - like processing data without proper legal grounds or incorrectly assigning roles. As Alex Lubyansky, Managing Partner at Acquisition Stars, notes:
A buyer that closes an acquisition without conducting structured privacy diligence inherits every pre-closing violation of the target [7].
These assessments can also reveal privacy risks that might lead to future legal troubles, such as class-action lawsuits. For instance, tools like chatbots or session replay technologies on consumer-facing websites could potentially violate California's Invasion of Privacy Act (CIPA) or the California Consumer Privacy Act (CCPA) [2]. Additionally, some issues, such as missing Standard Contractual Clauses for EU-to-U.S. data transfers, cannot be fixed after the fact [7].
A well-maintained Record of Processing Activities (RoPA) - a key element of Privacy by Design - can significantly speed up due diligence. It offers a structured framework for assessing compliance. Without an up-to-date RoPA, buyers may face costly efforts to reconstruct system-level data to evaluate privacy practices [7].
Secure Data Management Practices
Once compliance is confirmed through assessments, implementing secure data management practices becomes essential. Key measures include encryption, multi-factor authentication, and secure data rooms, all of which are often legally required [8]. Before sharing personal data, parties should sign privacy-focused non-disclosure agreements to ensure the data is used solely for the transaction and destroyed if the deal falls through. Buyers should also confirm that the target company has proper Data Processing Agreements (DPAs) with third-party processors, as required under GDPR Article 28. Additionally, applying "least privilege" access controls ensures that only authorized personnel can access sensitive information.
Privacy and cybersecurity diligence should happen alongside financial and legal reviews to integrate findings early in negotiations. Alex Lubyansky highlights this point:
Cyber diligence must run in parallel with financial and legal diligence from the moment the data room opens. Sequential review leaves buyers without findings when the purchase agreement is negotiated [8].
Skipping these steps can lead to serious consequences. For example, in 2016, Verizon Communications Inc. reduced its acquisition offer for Yahoo's operating business by $350 million after discovering two major data breaches during due diligence [8].
Impact on Deal Structure and Valuation
When privacy gaps come to light during due diligence, they can directly reshape the structure of a deal. Privacy compliance has become a key factor in deal terms, often leading to price adjustments, escrow holdbacks, or specific indemnity clauses to address any uncovered issues. According to Accenture Research's 2022 Technology in M&A survey, a staggering 96% of CIOs revealed that technology due diligence - encompassing privacy assessments - exposed issues or opportunities that materially affected certain deals [1].
Adjustments for Privacy Liabilities
Privacy risks are a significant factor in financial negotiations. Unlike cybersecurity breaches, which are typically one-off events, privacy violations tend to be systemic, accumulating liability over time until resolved [7]. For example, a company misclassifying its role under privacy regulations could face liabilities reaching nine figures due to a faulty privacy framework [7]. Buyers often calculate the cost of addressing these issues and use that as leverage to negotiate price reductions or set aside escrow funds.
The financial exposure from privacy violations can be immense. Regulatory bodies can impose hefty fines [1], and some violations - such as missing Standard Contractual Clauses for data transfers between the EU and the U.S. - cannot be corrected retroactively. This means buyers may inherit the full extent of historical liabilities [7].
The worth of key assets, such as marketing databases or customer lists, depends entirely on their compliance with privacy laws. Without proper consent documentation or Privacy by Design practices, these assets may lose their value entirely to potential buyers [7][5]. Alex Lubyansky, an M&A Attorney at Acquisition Stars, highlights this shift:
Data privacy has moved from a compliance checkbox to a material deal variable [7].
These financial stakes often lead to customized privacy clauses in purchase agreements.
Privacy Clauses in Purchase Agreements
Privacy concerns are now explicitly addressed in purchase agreements through representations, warranties, and indemnity provisions [2]. These clauses often cover technologies like chatbots or session replay tools, which have faced increasing legal scrutiny under laws such as California's Invasion of Privacy Act (CIPA) and the CCPA [2]. Buyers may even exclude known privacy issues from representations and warranties insurance coverage.
In some cases, deal terms require sellers to implement specific compliance measures as a condition of closing. This could include updating privacy notices or disabling high-risk tracking technologies. For sellers, conducting a pre-deal privacy audit can uncover and resolve gaps, such as issues with consent mechanisms or incomplete data mapping, which can help preserve the company's valuation during negotiations [2].
Long-Term Value of Privacy-Compliant Assets
Strong privacy compliance doesn't just mitigate immediate risks; it also boosts the long-term value of assets. Companies with well-documented Records of Processing Activities (RoPA) and clear data governance frameworks can significantly speed up the due diligence process, reducing potential friction in the deal [7]. Accenture Research reports that 74% of CEOs now see technology integration in M&A as a driver of competitive advantage or growth [1].
Privacy-compliant assets also streamline post-acquisition integration, especially when buyers aim to utilize the target's data assets for growth. Avoiding costly remediation work after the deal closes is a major operational benefit. Companies that embed privacy protections early not only safeguard their deal value but also become more attractive acquisition targets in a regulatory-heavy landscape.
For growth-stage companies gearing up for M&A, Phoenix Strategy Group provides specialized financial and strategic advisory services to integrate Privacy by Design practices throughout the transaction process.
Implementing Privacy by Design for M&A Success
Incorporating Privacy by Design into mergers and acquisitions (M&A) requires careful planning and the involvement of experts. When privacy is treated as an afterthought, companies often face expensive remediation, regulatory fines, and avoidable deal complications.
Early Involvement of Privacy Experts
Getting privacy professionals involved before signing the letter of intent can help uncover and address potential vulnerabilities early in the process. These experts can assess how poor data practices might financially impact the deal, from regulatory fines to the costs of identity fraud monitoring for affected individuals. They also evaluate the legality and quality of data assets, which directly influences valuation.
Take the Marriott-Starwood acquisition as an example. Early privacy assessments could have helped identify and address existing vulnerabilities, preventing the acquirer from inheriting security issues that later became costly liabilities.
Before sharing any personal data during due diligence, it’s crucial to negotiate a non-disclosure agreement (NDA) with clear data protection clauses. In jurisdictions like Canada, regulations such as PIPEDA allow companies to share necessary information under business transaction exemptions - provided specific security measures and NDAs are in place [10].
Once privacy experts are involved, specialized tools can further clarify the target company’s privacy practices.
Using Privacy by Design Tools
Data mapping is a critical step to understanding how information flows within the target company. This includes identifying data sources, access points, third-party disclosures, and retention policies. As Koley Jessen explains:
Mapping out the existing information flows in the target company can ease this integration process by identifying areas of existing alignment and processes ripe for adjustment [6].
Conducting Privacy Impact Assessments (PIAs) or Data Protection Impact Assessments (DPIAs) is another essential step. These assessments evaluate risks tied to new technologies, products, or data uses discovered during due diligence. They also help quantify potential liabilities and demonstrate accountability [10][11]. For companies testing cutting-edge tools like AI or biometrics, regulatory sandboxes - such as those offered by the UK's ICO or Singapore's IMDA - offer controlled environments to test innovations with regulatory oversight [9].
Organizing due diligence requests into a risk-based hierarchy ensures the most critical privacy concerns are prioritized. For example, healthcare companies subject to HIPAA or other sensitive industries may require heightened scrutiny. This approach allocates resources effectively based on the deal’s size, the target’s business nature, and the acquirer’s risk tolerance [6].
With tools like data mapping and impact assessments in place, acquirers can approach integration with a clear focus on privacy.
Integration Planning with Privacy Requirements
Post-acquisition integration should emphasize privacy compliance from the start. Gowling WLG advises:
Regardless of whether issues were found, best post-closing practice is to isolate the acquired company's systems from the purchaser's and delay integration until a comprehensive risk assessment has been completed [4].
This system isolation strategy helps prevent any pre-existing malware or vulnerabilities from spreading to the acquirer’s network.
Before migrating data, it’s essential to conduct penetration testing, vulnerability assessments, and impact assessments. Updating the target company’s privacy policies to reflect the acquiring entity’s standards ensures compliance with current laws [6]. For companies involved in multiple acquisitions, creating a standardized data breach response plan and information security policy can streamline integration across the portfolio [6].
Tabletop exercises, which simulate data breach scenarios, are another effective tool. These exercises test whether the integrated team is prepared to handle incidents. Additionally, providing immediate privacy and cybersecurity training to employees - especially those handling sensitive data - reduces risks and demonstrates to regulators that privacy is a priority [4][6].
Taking these proactive steps not only minimizes incidents but also protects the deal’s value by reducing post-acquisition remediation costs and preserving the worth of compliant data assets.
For growth-stage companies preparing for M&A, Phoenix Strategy Group offers financial and strategic advisory services to help integrate Privacy by Design throughout the transaction process, ensuring compliance while safeguarding deal value.
Conclusion
Privacy by Design has become a key element in shaping the outcomes of mergers and acquisitions (M&A). By incorporating privacy considerations at every stage - from due diligence to post-close integration - companies can shield themselves from costly liabilities and maintain the value of their deals.
The financial risks are undeniable. Overlooking privacy issues can lead to reduced valuations and unfavorable deal terms, as buyers increasingly account for remediation expenses and inherited risks in their offers. Without a structured approach to privacy diligence, acquirers may find themselves responsible for pre-closing violations, such as missing Standard Contractual Clauses or the use of unauthorized tracking technologies, both of which have led to an uptick in litigation.
Engaging privacy experts early in the process, along with leveraging tools like data mapping and Privacy Impact Assessments, establishes a strong foundation for smoother integrations. These proactive measures, paired with system isolation, updated privacy policies, and focused employee training, not only reduce the likelihood of post-acquisition issues but also demonstrate to regulators that privacy is a primary concern.
For growth-stage companies gearing up for M&A, Phoenix Strategy Group offers financial and strategic advisory services designed to weave Privacy by Design into the transaction process. Their guidance helps ensure compliance, protects deal value, and supports successful exits - all while reducing risks and promoting operational efficiency. In today's M&A landscape, privacy is no longer optional; it’s a cornerstone of effective strategy.
FAQs
What privacy issues can reduce an acquisition price?
Privacy concerns that could reduce an acquisition's value include regulatory non-compliance, unresolved legal risks, data breaches, and hidden privacy violations. These issues can impact the overall valuation, slow down the transaction process, or complicate operations post-acquisition.
What documents should a target have ready for privacy diligence?
When preparing for privacy diligence during an M&A process, it’s crucial for the target company to gather and organize specific documents. These include:
- Data maps: These outline how data flows through the company, including where it’s stored, how it’s processed, and who has access.
- Privacy policies: Clear and up-to-date policies that explain how the company collects, uses, and protects personal information.
- Vendor agreements: Contracts with third-party vendors that detail data handling responsibilities and compliance with privacy laws.
- Records of data processing activities: Documentation that tracks how data is processed, ensuring transparency and regulatory compliance.
Having these materials ready not only shows a commitment to privacy compliance but also helps address any privacy-related concerns that may arise during the due diligence phase.
What privacy steps should happen immediately after close?
After the deal is finalized, it's crucial to update privacy notices to account for any changes in how data is processed due to the merger. Additionally, securing fresh consents where required by privacy laws is a must. These steps help ensure compliance with regulations while safeguarding sensitive data.
