Data PrivacyPrivacy Risk Assessment In Cross-Border M&A Transactions

INTRODUCTION

In the present era of digitalization and borderless transactions, data plays a crucial role for any establishment. Corporations engage themselves in multiple cross-border transactions and data, specifically, personal data, becomes a central area of focus. The procedure of cross-border mergers and acquisitions (hereinafter referred to as “M&A”) puts forth several layers of complexities and intricacies due to existence of  different data protection regulations across nations.

The notion of privacy risk assessment is not new and is no longer a secondary procedure in cross-border mergers and acquisitions. In the contemporary period, privacy risk assessment is a vital procedure for recognizing and mitigating the potential risks associated with data protection and other compliance issues.

As companies expand globally and merge with  companies across other nations, they must ensure  the privacy risk assessments  are carried out in accordance with the jurisdictional norms and legislative frameworks. If the companies or corporations fail to comply with such framework and regulations, this would eventually result in severe penalties, reduced deal valuations, operational issues, and other failures.

Privacy risk assessment can be considered as the cornerstone of cross-border mergers and acquisitions as this procedure provides safety and security to both operational as well as financial integrity of the transactions.

IMPORTANCE OF PRIVACY RISK ASSESSMENT IN CROSS-BORDER M&A

Privacy risk assessment in cross-border M&A is one of the most vital procedures, as it provides crucial support in the protection of digital data including personal data. Privacy risk assessment in the digitalized world helps in addressing privacy risks during the transactions, which can further reduce the valuations in the deal, as observed in the case of the Yahoo-Verizon acquisition, where a breach of data led to a $350 million price cut in the deal.

In addition to this, the assessment procedure also provides support in recognizing and detecting privacy issues before the closure of deal, thus preventing data breaches and other damages that could potentially cause losses to acquiring companies. Moreover, the privacy risk assessment procedure also helps in building trust among the customers, investors, and other stakeholders involved in transactions and related activities.

Last but not least, the privacy risk assessment procedure during cross-border M&A transactions provides smooth integration and operational continuity among different jurisdictions around the world, by minimizing the chances of disruption of any kind and having a competitive advantage.

METHODS FOR RISK ASSESSMENT

The privacy risk assessment method in cross-border M&A goes beyond the basic due diligence process conducted by establishments during M&A. The risk assessment procedure involves:

Compliance Review:

A key component of this process is the compliance review, which assesses how effectively an organization adheres to applicable data protection laws and digital regulations in the relevant jurisdiction. This review typically covers areas such as documentation, training programs, regulatory filings, etc.

Scrutinizing Security Breach:

Under this, the primary area of focus is on how well a corporation or establishment protects its data and how effectively and efficiently it reacts and respond to any incidents. Furthermore, this also includes the determination of the severity of the breach and whether the breach causes loss.

Third-Party Risk Review:

It is the type of review in which the main focus is on those vendors or third party who handle data. This involves assessing how much data they access, their compliance certifications and other obligations.

LEGISLATIVE FRAMEWORK 

While carrying out the procedure and other formalities for cross-border M&A, the understanding of the legal landscape governing data privacy is essential as well as critical. Different nations around the globe levy and enforce varied obligations on the collection, processing and transfer of data, including personal data, and this further presents significant and notable challenges during the compliance and risk assessment procedure.

Therefore, for the robust privacy risk assessment, corporations and establishments must account for all the applicable regulations in the relevant jurisdictions while carrying out cross-border M&A.

For instance, in the European Union, the compliance with the General Data Protection Regulation (hereinafter referred to as “GDPR”) is mandatory when conducting cross-border M&A in order to avoid heavy penalties and fines. Under the GDPR, the privacy risk assessment procedure commonly includes the assessment of data processing activities, storage locations, purpose for the processing of data and other compliances. Apart from the pre-transaction risk assessment procedure, the GDPR also provides for post-merger integration. The post-merger integration provides for developing a data protection plan that aligns perfectly with legislative frameworks and ensures secure cross border data transfer.

Moving forward, in India the primary legislation that governs cross-border data transfer is the Digital Personal Data Protection Act of 2023 (hereinafter referred to as the “DPDPA”). While carrying out the procedure of cross-border mergers and acquisitions, the corporations or the establishments involved must comply with the requirements as provided under the legislative framework of India.

The DPDPA provides for specific set of conditions and other restrictions that govern cross-border data transfer while ensuring that personal data is processed securely and integrity of the country is maintained. The primary provision that provides for and governs the transfer of data in cross-border transactions is Section 16. This section says that, the central government has the power to restrict the transfer of personal data for processing to any other country or nation as notified. Apart from this, it also states that this particular section does not restrict the applicability of any law in force in India that provides for a higher degree of protection or restriction on the transfer of personal data by a Data Fiduciary outside India in relation to any personal data or Data Fiduciary.

In addition to this provision, Rule 14 of the Draft Digital Personal Data Protection Rules, 2025 (hereinafter referred to as “Draft Rules”) also provides for the transfer of personal data outside the territory of India. This particular rule permits the transfer of personal data outside India by a Data Fiduciary, but it is subject to certain requirements as set and decided by the central government from time to time.

Now, while carrying out the procedure of cross-border M&A, it is vital for the involved corporations and establishments to follow and comply with the rules and regulations as provided by the DPDPA and Draft Rules for the transfer of digital personal data outside the country.

AMLEGALS REMARKS 

In today’s fast-evolving digital landscape, privacy risk assessment has become a critical component of cross-border M&A. Despite being a complex, multi-step process, it plays an essential role in safeguarding data and minimizing transaction-related risks.

That said, India currently lacks a well-defined framework for conducting privacy risk assessments in the context of cross-border M&A. Establishing a clear, standardized approach is crucial to ensure consistency, regulatory alignment, and the protection of sensitive information in such high-stakes transactions.

– Team AMLEGALS assisted by Mr. Aditya Raj Pandey (Intern)

For any further queries or feedback, feel free to reach out to rohit.lalwani@amlegals.com or mridusha.guha@amlegals.com