Mergers and acquisitions (M&A) are complex endeavors, and data compliance is a critical component that can make or break a deal. As regulations evolve and the volume of corporate data expands, a thorough due diligence process is non-negotiable. An estimated 90% of all digital data is unstructured, making it difficult to manage and secure without the right tools and processes. A failure to properly assess a target company’s data landscape can lead to unforeseen liabilities, costly fines, and significant integration challenges post-close.
This checklist provides a structured framework for navigating the intricate world of data compliance during M&A. By following these steps, you can identify risks, validate controls, and build a clear roadmap for seamless data integration. Use this guide to ensure your next M&A transaction is built on a solid foundation of data governance and compliance.
Governance, Roles & Evidence
A clear governance structure is the backbone of any effective compliance program. Before diving into the data itself, you must identify who is responsible for it.
- Assign Owners: Clearly designate individuals or teams responsible for privacy, security, and records management within the target organization.
- Document Everything: Maintain a detailed record of all compliance-related decisions, risk assessments, and any exceptions granted. This documentation is crucial for demonstrating due diligence.
Check out: A Complete Guide on Unstructured Data Discovery for M&A
Data Inventory & Mapping
You cannot protect what you don’t know you have. A comprehensive data inventory is essential for understanding the target’s data footprint. This is especially challenging given that unstructured data grows at an annual rate of 55-65%.
- Identify Systems: Map out all IT systems, applications, and databases where data is stored.
- Locate Unstructured Data: Pinpoint where unstructured data—such as emails, documents, and collaboration platform content—resides.
- Tag Sensitive Data: Use tools like Congruity360’s Instant Insights and Classify360 to automatically identify and tag sensitive or regulated data, enabling you to prioritize protection efforts.
Privacy Law Readiness
The global privacy landscape is a patchwork of complex regulations. Your due diligence must confirm the target’s adherence to all applicable laws.
- Track Privacy Laws: Monitor compliance with key regulations, including state (e.g., CCPA/CPRA), federal, and global laws (e.g., GDPR).
- Validate Notices and Agreements: Review privacy notices for accuracy and ensure vendor and data processing agreements are robust and enforceable.
Security Controls & Incident History
A target’s security posture and history of breaches are strong indicators of potential risk.
- Review Past Breaches: Analyze any previous security incidents, data breaches, and the remediation steps taken.
- Ensure Disclosure Readiness: Confirm the target has a tested incident response plan that aligns with new regulatory disclosure rules, such as the SEC’s four-day reporting mandate.
Regulatory Filings & Thresholds
Certain M&A transactions require pre-merger notifications to regulatory bodies to prevent antitrust issues.
- Confirm HSR Thresholds: Verify if the deal meets the Hart-Scott-Rodino (HSR) Act thresholds for reporting.
- Monitor Annual Updates: Stay informed about annual adjustments to filing fees and thresholds to ensure compliance.
Data Retention & Legal Holds
Retaining unnecessary data increases risk and storage costs. Poor data quality costs the U.S. economy an estimated $3.1 trillion annually, much of which is tied to redundant, obsolete, or trivial (ROT) data.
- Review Schedules and Holds: Examine the target’s data retention schedules and ensure all legal holds are properly managed and documented.
- Securely Remove ROT Data: Identify and defensibly delete redundant, obsolete, or trivial data to reduce the attack surface and minimize liability.
Cross-Border Transfers & Sector Rules
Data transfers across international borders are subject to strict legal requirements.
- Map Data Transfers: Identify all cross-border data flows and confirm there is a lawful basis for each transfer (e.g., Standard Contractual Clauses, Adequacy Decisions).
- Address Sector-Specific Rules: Ensure compliance with industry-specific regulations, such as HIPAA for healthcare data or financial services rules.
Contractuals & Post-Close Plan
The findings from your due diligence should directly inform the deal’s legal agreements and the post-close integration strategy.
- Align Legal Terms: Ensure the representations, warranties, and covenants in the M&A agreement reflect the data compliance risks identified during diligence.
- Build a Roadmap: Develop a Day-1 and Day-100 compliance roadmap outlining key integration tasks, risk mitigation activities, and governance updates.
AI Governance
The use of Artificial Intelligence (AI) and Machine Learning (ML) introduces new data governance challenges.
- Inventory AI/ML Use: Document how the target company uses AI and ML models in its operations.
- Control Training Data: Ensure sensitive or personal data is not improperly used in AI training sets, which could violate privacy rights.
- Leverage AI for Governance: Utilize Congruity360’s AI-driven tools to automate data classification, enforce retention policies, and maintain compliance at scale.
Secure Your Next M&A Deal
Navigating data compliance in M&A requires a proactive and meticulous approach. This checklist serves as a starting point to help you uncover hidden risks and build a resilient, compliant data environment from day one. By prioritizing data governance, you not only de-risk the transaction but also unlock the full value of the target’s data assets.
Congruity360 provides the tools and expertise to streamline data management for M&A. Talk to us to learn how our solutions can help you conduct thorough due diligence and ensure a successful integration.
Check out: Enterprise Data in Mergers: How to Protect, Store, and Comply
