GDPR Risks in Cross-Border M&A Deals

GDPR compliance is critical in cross-border M&A deals to avoid fines of up to €20 million or 4% of global revenue. Here's what you need to know:

• Key Risks: Non-compliance with GDPR can lead to costly fines, legal liabilities, and reduced deal value. Common risks include incomplete data processing records, weak vendor contracts, and unresolved breaches.
• Due Diligence Focus: Assess data processing activities, storage locations, vendor agreements, and international data transfers. Look for gaps in privacy policies and compliance frameworks.
• Post-Merger Integration: Align privacy policies, consolidate data systems, and implement secure cross-border transfer mechanisms like SCCs or BCRs.
• Actionable Steps: Conduct detailed data mapping, review privacy policies, and ensure compliance terms are part of the M&A agreement. Train staff and establish ongoing compliance checks.

Quick Tip: Start GDPR reviews early in the M&A process to identify risks and avoid surprises. Prioritizing data protection ensures smoother integration and long-term stability.

Common GDPR Risks in Cross-Border M&A

Cross-border M&A deals can bring significant GDPR compliance risks, potentially reducing deal value and increasing legal exposure.

Due Diligence Gaps

Incomplete due diligence can lead to heightened risks during acquisitions. Key focus areas include:

In addition to these gaps, challenges related to data transfers must also be addressed.

Data Transfer Violations

Cross-border data transfers come with intricate compliance demands:

• Transfers between the EU and non-EU countries require Standard Contractual Clauses (SCCs) or Binding Corporate Rules (BCRs).
• System mismatches can result in unauthorized transfers.
• Poorly documented international transfers increase compliance risks.

Pre-existing GDPR Issues

It’s crucial to assess whether the target organization has unresolved GDPR violations, as these liabilities transfer upon acquisition:

A thorough evaluation of these risks is essential to guide effective due diligence steps.

Due Diligence Steps for GDPR Compliance

Address any gaps in due diligence by implementing specific steps to meet GDPR requirements.

Data Inventory Creation

Create a detailed inventory of data to support GDPR compliance efforts. Key areas to include:

Pay special attention to high-risk processing activities that could influence deal valuation or require remediation. Once documented, compare privacy policies to these practices for alignment.

Privacy Policy Analysis

Examine privacy notices, consent forms, and communications with data subjects to confirm they clearly outline processing purposes, legal bases, third-party sharing, and data subject rights.

Verify alignment between documented policies and actual practices through:

• Staff interviews
• Process walkthroughs
• Sample tests of data subject requests
• Reviews of consent records

Highlight any inconsistencies, such as:

• Missing or outdated policy details
• Gaps in implementation
• Non-compliant processes
• Updates required before deal finalization

Once policies are consistent with practices, assess international data transfer mechanisms to ensure compliance across borders.

Data Transfer Review

Cross-border data transfers need careful evaluation, especially in international deals:

Identify transfers that may need restructuring or additional safeguards after the acquisition. Review existing transfer impact assessments and ensure they meet current regulatory standards.

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GDPR Requirements in M&A Agreements

After completing thorough due diligence, M&A agreements need to include clear GDPR-related terms to address any compliance risks uncovered.

Data Processing Terms

M&A agreements should outline the scope of data processing for both the due diligence phase and post-closing activities.

• Processing Scope Definition: Clearly specify how data can be used by defining:
  • Who has authorized access
  • The purposes and limits of data processing
  • Data retention policies
  • Security protocols for sharing data
• Cross-Border Transfer Mechanisms: Include approved tools like Standard Contractual Clauses (SCCs), completed transfer impact assessments, and additional safeguards for handling data in high-risk jurisdictions.
• Joint Controller Arrangements: Clarify responsibilities by:
  • Assigning GDPR obligations
  • Coordinating compliance efforts
  • Outlining how liabilities are shared

These steps help ensure that the terms of the M&A agreement align with GDPR standards.

Post-Deal GDPR Integration

After completing due diligence, the next step is to integrate GDPR compliance into the newly merged entity. Phoenix Strategy Group advises using a well-organized integration plan to minimize compliance risks.

Data Policy Integration

Start with a gap analysis of existing policies. Key steps include:

• Update and consolidate Article 30 records to reflect the new entity's operations.
• Unify privacy notices to align with the updated practices of the merged organization.
• Implement a centralized consent tracking system to manage user permissions effectively.

Once policies are aligned, focus on merging data systems to ensure smooth international data transfers.

Cross-Border Data Systems

For international data transfers, compliance is critical. Here's how to manage it:

• Transfer Impact Assessment (TIA): Establish a centralized process to monitor transfer routes, document safeguards, and conduct periodic reviews of mechanisms.
• Technical Infrastructure Integration:
  • Use end-to-end encryption for all data transfers.
  • Implement access controls based on data classification.
  • Maintain detailed audit trails for tracking international data movements.
• Documentation Framework:
  • Include applied transfer mechanisms like SCCs and BCRs.
  • Document technical safeguards in place.
  • Schedule regular compliance assessments to ensure ongoing adherence.

In addition to technical measures, staff training plays a key role in maintaining GDPR compliance.

Staff Training and Compliance Checks

Develop a structured training program tailored to different roles within the organization:

To ensure compliance, monitor progress through:

• Monthly audits to identify and address issues.
• Quarterly risk assessments to evaluate vulnerabilities.
• Annual reviews of policies to keep them up-to-date.

Maintain thorough records and establish clear reporting channels to meet Article 5(2) requirements. These steps ensure the organization remains compliant and prepared for any regulatory scrutiny.

Navigating GDPR Compliance in Cross-Border M&A Deals

Handling GDPR compliance in cross-border M&A deals requires careful planning, thorough due diligence, and clear strategies for post-deal integration. Data protection rules demand close attention at every stage of the transaction.

Expert insights can make all the difference. Lauren Nagel, CEO of SpokenLayer, highlights this by saying:

PSG and David Metzler structured an extraordinary M&A deal during a very chaotic period in our business, and I couldn't be more pleased with our partnership.

To effectively manage GDPR risks, focus on these key areas:

• Pre-deal Assessment: Conduct thorough due diligence to assess GDPR compliance and uncover any risks before the deal is finalized.
• Expert Negotiation: Work with specialists to integrate GDPR requirements into the terms of the deal.
• Post-merger Integration: Build a cohesive data protection plan that aligns policies, ensures secure cross-border data transfers, and includes ongoing compliance monitoring.

These strategies reflect the importance of strong due diligence, clear contractual safeguards, and effective integration processes. Phoenix Strategy Group’s experience shows that structured GDPR programs help organizations avoid penalties while maintaining operational stability. Prioritizing data protection not only ensures compliance but also adds long-term value.

Related posts

• Data Privacy Due Diligence for Cross-Border M&A
• M&A Risks: Data Breach Compliance in Cross-Border Deals
• Privacy Impact Assessments in M&A: Key Steps
• 2025 Updates to Merger Notification Thresholds