The recent attention surrounding cyber security is a reminder of how a company's records are no longer stored in boxes filled with paper files. Although the (not so) new age of electronic data storage has resulted in new ways of doing business that were never before possible, it has also resulted in a host of complexities when considering how, and in some cases what, electronic records will be handed over to the buyer of a business in an M&A transaction. These complexities are compounded when a buyer is only purchasing a portion of a business, the rest of which will be maintained by the seller or sold to a different party.

For lawyers drafting and negotiating a purchase agreement, this goes beyond describing the assets to be sold in a way that includes electronic records; it also involves re-thinking conventional books and records provisions and considering their applicability in the digital age. In addition, it means working closely with those who understand the selling company's policies and methods around the storage and retention of electronic records, and together considering the following:

  • What do the company's records consist of? Are they a mix of paper files and electronic records?
  • Where are the electronic records located? For example, are they housed on an internal server or through a third-party service provider, or a mix of both?
  • What volume of records are stored electronically? Unlike the age of boxes filled with paper files, electronic records have a greater propensity to "pile up." Consider whether the volume of electronic records can realistically be transferred to a buyer without incurring significant costs.
  • Are all of the electronic records relevant to the buyer's continued operation of the business to be purchased?
  • Does the buyer have the infrastructure to receive and store all of the electronic data proposed to be transferred?
  • In the case of a partial sale, can the data realistically be split-up without incurring significant costs? If so, what will that process look like?
  • Who will be responsible for transferring and receiving the electronic records? What will that process look like? How much lead time is required?

Working through the above questions with technology professionals at each of the selling company and the buyer is a critical exercise in understanding the effort and costs associated with the transfer of electronic data. Deciding at the outset which party will be responsible for the costs associated with transferring the data can prevent disagreement later on. Asking the buyer to consider its own capacity to receive the data may be important in determining the universe of electronic records to be transferred.

Given the prevalence of electronic data storage in today's digital age, these considerations are likely relevant — at least to some degree — to all types of businesses, but will certainly be of particular importance when the selling company has a large volume of electronic records.

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