Worldwide: Impact Of Data Protection Laws On Mergers And Acquisitions (M&A) Transactions

Last Updated: 12 September 2019
Article by Carolyn Bigg, Joe Bauerschmidt and Teerin Vanikieti

In recent weeks, the UK's Information Commissioner's Office (ICO) imposed major fines on several prominent companies for data security hacking incidents that resulted in violations of the EU's General Data Protection Regulation (GDPR).

In one of the cases, the buyer was held liable despite the data security incident reportedly taking place prior to an M&A transaction.

This case prompted M&A lawyers to carefully consider the future ramifications of a data protection law violation on M&A transactions and the parties to such transactions.

Extraterritorial impact of GDPR

At the outset, it is important to note that GDPR in certain circumstances may apply extraterritorially outside the EU. For example, it may apply to firms established outside the EU but have processing activities related to (1) the offering of goods or services to data subjects who are EU residents, or (2) the monitoring of the behaviour of such data subjects which takes place in the EU. Businesses in Thailand may be subject to GDPR if they market products or services to EU residents or obtain data in connection with EU residents. For this purpose, the use of electronic channels such as e-booking platforms (commonly used by hotel and airline businesses in Thailand) and e-commerce platforms which are accessible by EU residents may be caught by GDPR. The penalties provided under GDPR are severe and can be up to 4% of the violator's total worldwide annual turnover of the preceding financial year or EUR 20 million, whichever is greater.

Therefore, in addition to the issues under Thailand data protection laws (see below), both buyers and sellers in an M&A transaction should not forget additional potential liabilities under GDPR.

Thailand data protection law position

Thailand has recently introduced the 2019 Personal Data Protection Act, which will become fully effective on 28 May 2020. This Act will apply to the collection, use or disclosure of personal data by a data controller or data processor based in Thailand, irrespective of whether the activity is conducted in the country or elsewhere. It will also apply where a foreign company collects, uses or discloses the personal data of a data subject who resides in Thailand, including when the personal data of such data subject is processed in relation to the offering of goods or services to such data subject.

The Act significantly upgrades personal data protection in Thailand. Among other requirements, the Act:

  • provides that any collection, use or disclosure of personal data will be subject to the consent of the data subject, which may be obtained in writing or electronically;
  • requires that a statement requesting consent must be provided clearly, separately, using clear and plain language, containing the purposes of the collection, use or disclosure and is subject to withdrawal at any time without detriment; and
  • requires an operator to provide proper security measures for the personal data to prevent unlawful loss, use, alteration, modification or disclosure of, or access to, the data.

Violations under the Act may attract both civil and criminal liability. A data subject who is wronged may receive damages in a civil proceeding. Criminal and administrative fines may range from THB 500,000 to THB 5 million. Additionally, a jail term of six months to one year may also be imposed.

A business that is a heavy user of personal data (e.g. a supplier of goods or services to individual customers, a hotel operator, an airline company, a social media platform operator, an insurance firm, a financial institution, a hospital and a medical establishment) should therefore prepare itself for much stricter data protection measures.

What do these developments in data protection laws mean for M&A transactions?

Both the buyer and the seller in an M&A transaction should exercise extra care when managing the risks associated with the target business. In particular, they should assess: (1) whether the data can be transferred at all as part of the M&A transaction; and (2) whether the target has complied with the applicable data protection laws and address any risks of non-compliance between themselves. Both of these are, in our data-driven world, key to pricing as well as risk decisions in an M&A transaction.

While the biggest risks often arise in asset sales (as there will be a change in terms of the data "controller"), there are still some important safeguards that both sellers and buyers should take even in share sales.

While many data protection laws in other jurisdictions (e.g. Singapore) contain helpful exemptions for M&A transactions, this is not the case in all jurisdictions. Further, such exemptions usually only cover due diligence processes, and so do not cover historic liabilities for data security incidents or use of data post-transaction.

Due Diligence

In light of the above, buyers (particularly those whose business handles a significant amount of personal data) should conduct not only conventional legal and financial due diligence but also:

  • an assessment as to whether the data can be shared during the initial due diligence procedure (whether via data subject consent or an exemption applying, depending on the relevant laws at play) and, more importantly, in the case of an asset sale whether the target has the consent of the data subjects to transfer the data to the buyer;
  • an assessment as to what purposes have been notified to, and consented to by, data subjects, and whether these are sufficient for the buyer's needs and ambitions going forward and, if not, the practicality as to whether fresh consent must, and can, be obtained from the data subjects; and
  • a review of operational, IT and cyber security to ascertain whether the target is equipped with proper operational, IT and cyber security policies and procedures. With an increased need for such a service, a number of consultants and specialized IT firms have developed such a review service as part of their product offerings.

Warranties and Indemnities

As noted above, violation of data protection law may result in significant fines so the buyer should therefore attempt to require the seller to give representations and warranties specifically confirming, inter alia, that the target business:

  • has never had any data security breach incidents or engaged (and does not have the risk that it will engage) in a dispute over a data protection offence;
  • is equipped with adequate IT and cyber security mechanisms;
  • is properly and regularly audited for its IT and cyber security compliance;
  • has in place a proper data protection officer (if required) and data protection policy; and
  • fully complies with data protection law.

Depending on the bargaining power of the buyer, in reality, a prudent seller would be quite reluctant to give all such representations and warranties to the buyer.

In addition, if commercially possible, the buyer should require indemnification by the seller for any breach of these representations and warranties, as well as for any failure to comply with data protection law as may have occurred prior to the acquisition.

On the seller's side, whilst in principle any liability that may have been created when the seller exercises the control of the target should be assumed by the seller, the sellers should also clearly define the limit of their liability, whether in terms of amount, duration and/or nature of damages (say, excluding the liability for opportunity loss or reputational damage).

Cyber-Insurance and Warranty and Indemnity Insurance

The buyer should also check the sufficiency of the target’s insurance coverage to protect the business should there be any third party cyber-attacks, including such insurance’s coverage and exclusions. For example, a cyber-insurance enables a policy holder company to alleviate risks and be compensated (which may include, business losses, investigation and lawsuit costs) in relation to cyber-related security breaches (including a data breach and contamination of data).

The seller and/or the buyer may also explore obtaining a warranty and indemnity insurance policy that specifically covers the risk of loss in connection with unknown and unintentional data protection offences as a way to reduce their potential liability (the premium on such a policy may also be shared between the parties). A variety of insurance products for this purpose can be further explored in the regional market.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Wright Hassall LLP
Lowndes, Drosdick, Doster, Kantor & Reed, P.A.
 
In association with
Practice Guides
by Mondaq Advice Centres
Relevancy Powered by MondaqAI
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Wright Hassall LLP
Lowndes, Drosdick, Doster, Kantor & Reed, P.A.
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions