Heightened risk of data sharing
In the current market conditions we are anticipating enhanced protocols for sharing data between seller and buyer:
● Data Sharing Agreement - Increased delineation and detail around custodial responsibility and data stewardship. We will see increased focus and detail around permissible uses and a push towards full indemnification for misuse of information and data;
● Data Processing Agreement - With an increased legislative environment around data use we will see further protections sought in any process; and
● Non-Disclosure Agreements - The rigour around NDA content and their negotiation is likely to harden as part of the wider process but commerciality must always be front of mind in a tighter process. We are investigating how recorded videos of certain interactions would work in practice from a disclosure perspective. We will also see more detail and guidance included in issued process letters.
The above example areas given are aimed at agreeing the three main types of data processes (encryption, deletion, return) and data transfer rules (in the case of cross-border data transfer during due diligence, by including EU GDPR type clauses as necessary alongside US data privacy legislation, e.g. HIPAA).
We are increasingly seeing R&W Insurance being utilised in North American and European deals and this is certainly becoming the norm where the target is venture-backed .
R&W Insurance is for the buyer’s benefit, is normally paid by the sellers, and insures against damages for breach of representations and warranties in the purchase agreement. It also avoids the situation where recourse is sought against an active management team in a people intensive deal.
R&W Insurance reduces the need for sellers to hold back consideration in escrow and provides them with purchase price certainty, allowing VCs to mark their investment return at close.
Negotiating appropriate levels of cover is key to both buyer and seller confidence and simplifies the legal drafting process considerably.
A buyer or investor can add (and pay for) additional coverage for higher amounts than the cap the sellers are willing to accept, and with longer survival periods.
We are seeing and expect buyers to continue to request enhanced R&W Insurance for fraud, impersonation and wider claims in people intensive transactions.
As part of this move we expect underwriters to demand: