Mergers and acquisitions ( M&A ) transactions are, by nature, processes of in-depth evaluation. In this sense, financial auditors, client portfolios, and tangible and intangible assets are rigorously analyzed before any decision is made. However, there is a liability that often doesn't appear in the valuation : digital security maturity and compliance with the LGPD (Brazilian General Data Protection Law). This is a risk that can paralyze transactions, reduce the purchase price , or generate unexpected liabilities for the acquirer. This article analyzes why this liability matters and what target companies need to demonstrate before sitting down at the negotiating table.
Why LGPD compliance has become a due diligence criterion.
The LGPD (Brazilian General Data Protection Law) came into effect in Brazil in 2020 and established clear obligations for companies that collect, store, and process personal data. Since then, a company's compliance history has become a significant asset or liability in any transaction.
The risk for the acquiring company is direct: in many cases, the new controller assumes responsibility for the acquired company's data liabilities. This means that fines resulting from past practices, unreported data breaches, or irregular databases can become the new controller's problem.
Historical international cases prove this risk. In the case of Yahoo!, the revelation of hidden data breaches during the negotiation caused the acquisition price by Verizon to plummet by $350 million.
What does data due diligence examine in practice?
A proper data audit in an M&A process goes far beyond verifying a privacy policy published on the website. It examines the chain of custody of the information in detail. Key verification points include:
- Mapping what data is collected., for what purpose and based on what legal justification
- Access controls, to verify who has permission to access which information
- Security incident historyincluding violations that were not reported to the authorities.
- Data disposal procedures, especially the proof of irreversible destruction information on obsolete devices
- Existence and role of the DPO (Data Protection Officer), a mandatory figure for many categories of companies.
The absence of adequate documentation at any of these points is a warning sign that could jeopardize the transaction or require significant capital withholdings as collateral.
The impact on valuation when compliance is weak.
Digital security maturity affects valuation in both direct and indirect ways . Among the most common consequences are:
- Reduction in purchase pricewhen auditors identify relevant compliance liabilities
- Retention of funds in escrow accounts (escrow), until the identified risks are mitigated
- Transaction paralysiswhen irregular data involves the company's core business.
The indirect consequences are equally relevant. Companies with a weak data protection record suffer reputational damage that affects their customer base, partners, and potential buyers during and after the negotiation process.
What target companies need to demonstrate
Preparation for an M&A process, from a data perspective, begins long before the negotiation . Companies that come to the table with solid governance have more bargaining power and convey more security to the acquirer.
The essential elements to demonstrate include:
- Updated data map, classifying information by sensitivity and purpose.
- Security policy implemented.with evidence of real-world application and not just formal documentation.
- History of regulatory compliance, including communications with the ANPD (National Data Protection Authority)
- Internal or external audit reports information security
- Incident response plan documented and tested
Furthermore, the traceability of the disposal of old hardware is a point that has derailed important negotiations. Without proof that the data has been irreversibly destroyed, auditors presume exposure and adjust the transaction risk upwards.
Data governance as a bargaining chip.
Companies that invest in digital maturity before a transaction are not just protecting themselves from risks. They are building a solid negotiating argument.
In regulated markets, compliance with the LGPD (Brazilian General Data Protection Law) is often an entry requirement . Corporate clients and strategic partners assess the level of governance of suppliers before entering into long-term contracts. Similarly, strategic acquirers value companies that have already demonstrated maturity in this area.
In this scenario, data protection ceases to be a legal obligation and becomes a negotiable asset . And like any asset, it is worth more when it is built in advance, not hastily during the audit process.
Service
Nextcomm – we create communication solutions that transform the way companies connect and interact.
nextcomm.com.br
Instagram: @nextcommoficial
Phone Number: (41) 3244-0058
Email: contato@nextcomm.com.br
