Privacy Impact Assessments in M&A: Key Steps

Privacy Impact Assessments (PIAs) are critical in mergers and acquisitions (M&A) to identify privacy risks, ensure compliance with regulations like GDPR and CPRA, and protect deal value. Here's what you need to know:

• What is a PIA? A process to analyze how personal data is collected, processed, stored, and transferred during M&A.
• Why PIAs matter: They prevent costly privacy issues, ensure compliance, and safeguard the deal's success.
• Key regulations: GDPR (EU/EEA) and CPRA (California, USA) require proactive privacy measures.
• Steps to conduct a PIA:
  • Build a team of privacy, legal, IT, and business experts.
  • Define data, geographic, and system scopes.
  • Gather essential documents like data processing records, privacy policies, and vendor agreements.
  • Analyze data flows, assess risks, and review international data transfers.
  • Develop a risk management plan with prioritized actions and align it with the deal strategy.
• Post-merger steps: Update privacy policies, train staff, and monitor compliance to avoid penalties and maintain trust.

Key takeaway: Conducting a thorough PIA ensures smooth integration, regulatory compliance, and long-term value protection in M&A transactions.

PIA Planning Steps

Building the PIA Team

Put together a team with expertise in privacy, legal matters, IT security, and business strategy. Key members should include:

• Privacy Officer or Data Protection Specialist
• M&A Legal Counsel with privacy knowledge
• IT Security Professionals
• Business Unit Representatives
• External Privacy Advisors

For international deals, consider bringing in M&A privacy consultants familiar with regulations across jurisdictions. For complex transactions, companies like Phoenix Strategy Group can provide valuable support. This team lays the groundwork for defining boundaries effectively.

Setting PIA Boundaries

Define clear boundaries for the PIA by focusing on three key areas:

Data Scope: Determine which data types and systems need evaluation. Focus on:

• Customer data
• Employee data
• Vendor or partner information
• Sensitive business data

Geographic Scope:

• Physical locations where data is stored
• Cross-border data transfers
• Regional privacy laws

Systems Scope:

• CRM platforms
• HR systems
• Marketing databases
• Cloud storage solutions

These scopes provide a structured approach to guide documentation and analysis.

Required Documentation

Make sure to gather these critical documents:

"The playbook is directed to M&A teams and privacy teams alike. For M&A team members, it is a chance to broaden their knowledge to help identify potential privacy-related issues themselves (especially if a privacy specialist is not brought over the wall). Privacy team members will learn how to navigate the M&A process and add value as an essential stakeholder." - Justin B. Weiss, CIPP/A, CIPP/E, CIPP/US, CIPM, FIP

A case in point: EC Healthcare's acquisition in Hong Kong highlighted the risks of poor data transfer documentation. Regulatory intervention by the PCPD led to mandatory adjustments in data-sharing practices.

Key documentation to prioritize includes:

• Data processing inventories
• Information security policies
• Incident response plans
• Privacy impact assessments from earlier projects
• Vendor agreements and management records
• Training logs and compliance records

This documentation supports the boundaries you’ve defined and helps address potential risks effectively.

PIA Execution Steps

Executing a Privacy Impact Assessment (PIA) involves a structured approach, starting with analysis, followed by risk evaluation and compliance verification.

Data Flow Analysis

Once boundaries are defined and documentation is ready, the first step is to map data flows. This helps identify potential privacy risks in mergers and acquisitions (M&A). Key areas to examine include:

• Points where data is collected
• Activities involved in data processing
• Locations where data is stored
• Transfers to third parties
• Data movements across borders

For instance, one company's data mapping exercise revealed inefficiencies that, when resolved, boosted both communication and revenue.

Risk and Compliance Review

The next step is to assess various risk categories. Here's a breakdown:

"Adhering to legal and regulatory requirements is a cornerstone of any privacy impact assessment (DPIA). Compliance with laws like the GDPR ensures your organization protects personal data effectively and avoids potential consequences such as fines and reputational damage." - DataGuard Insights

These evaluations lay the groundwork for managing international data transfers.

International Data Transfer Review

New global regulations, such as China's 2024 update, bring additional compliance challenges. To address these, focus on:

• Adequacy Decisions: Confirm whether data transfers occur between nations with approved data protection frameworks.
• Transfer Mechanisms: Determine if transfers qualify for exemptions or need added safeguards.
• Documentation Requirements: Keep detailed records, including:
  • Transfer impact assessments
  • Standard contractual clauses
  • Binding corporate rules
  • Consent mechanisms

"Stakeholder engagement is essential for a comprehensive Data Protection Impact Assessment (DPIA). Involving data subjects and relevant parties throughout the process promotes transparency and builds trust in your data practices." - DataGuard Insights

Set up monitoring systems to ensure compliance with regional regulations and properly document all cross-border data transfers.

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Risk Management Plan

Using insights from PIA execution, the following steps outline how to create an effective risk management plan. Poor privacy practices can lower deal valuations and result in major financial losses.

Risk Ranking

Combining quantitative and qualitative methods helps prioritize privacy issues:

Take the Marriott-Starwood case as an example: a pre-existing data breach cost $28 million in expenses and resulted in a $24 million GDPR fine. After ranking risks, align these findings with your deal strategy.

Deal Strategy Alignment

Privacy protections should align with transaction goals while maintaining the value of the data involved. Google's acquisition of Fitbit highlights the importance of clear data governance in achieving this balance.

"Strong privacy and security guidelines have been part of Fitbit's DNA since day one, and this will not change. Fitbit will continue to put users in control of their data and will remain transparent about the data it collects and why. The company never sells personal information, and Fitbit health and wellness data will not be used for Google ads."

Key steps for alignment:

• Review all privacy notices for clarity and compliance.
• Evaluate security protocols and vendor agreements.
• Assess employee data handling practices.
• Document data transfer requirements to ensure compliance.

Ensuring privacy protocols meet global regulatory standards strengthens the long-term value of the transaction.

Working with Advisors

Expert advisors play a crucial role in managing privacy risks both before and after the transaction. For example, Verizon's $350 million price reduction in its Yahoo! acquisition underscores the importance of addressing privacy issues early.

"Before you begin a merger or acquisition, partner with experienced experts that can assess the privacy and data security risks and help you attain the best possible deal – no matter what side of the table you're on!" - TrustArc

Specialized firms like Phoenix Strategy Group offer tailored risk management solutions, ensuring privacy measures are properly implemented throughout the entire transaction process.

Post-Merger Privacy Steps

After a merger, updating privacy measures is crucial to safeguard deal value and avoid potential penalties.

Policy Updates

Make sure your privacy policies reflect the new entity's data practices. Key areas to address include:

• Data Subject Rights: Update procedures for handling requests.
• Data Processing Records: Consolidate and streamline processing inventories.
• Vendor Agreements: Revise terms for third-party access.
• International Transfers: Adjust mechanisms for cross-border data flows.

Don’t forget to revise system architecture documents and data flow diagrams to align with the new infrastructure. Once changes are made, ensure your workforce is on the same page by conducting targeted training sessions.

Staff Privacy Training

Educate employees on the updated privacy measures. Ben Richardson, Cyber Product Lead at QBE Australia, highlights the challenge:

"Successfully bringing together two separate sets of cultures and IT infrastructures is one of the most challenging aspects of M&A."

Training topics to include:

• Data classification protocols
• Updated privacy policies and procedures
• Secure data sharing practices
• Regulatory compliance requirements
• Incident response protocols

Regular IT security and phishing training can also reduce social engineering risks while fostering a unified approach to privacy.

Compliance Tracking

After training, continuous compliance monitoring is essential. Lorelei Trisca, Content Marketing Manager at Deel, emphasizes:

"Deel's Compliance Hub delivers continuous compliance, actively monitoring and updating you on changes and risks crucial to your business."

Steps for effective compliance tracking:

• Use automated tools to monitor compliance.
• Conduct regular risk assessments and audits.
• Set up clear reporting channels.
• Collect periodic employee feedback.
• Document regulatory changes.

A dedicated compliance team can coordinate across departments to ensure consistent privacy practices. These measures, combined with earlier PIA findings, help secure long-term regulatory and operational success.

Summary

Main Steps Review

Carrying out effective PIAs during M&A requires a clear, organized approach. Here’s what you need to focus on: build a dedicated team, set clear boundaries, analyze how data flows, assess risks, and confirm compliance in all relevant jurisdictions.

Key actions include:

• Evaluating privacy policies across all platforms involved
• Assessing security measures and reviewing past incidents
• Reviewing agreements on data protection and third-party relationships
• Documenting internal controls and governance processes

Take the Marriott-Starwood case as a cautionary example: their acquisition revealed an existing breach, costing $28M in expenses and a $24M fine.

Following these steps, combined with expert guidance, helps ensure smooth privacy integration after a merger.

Advisory Support

Expert advisors can help you navigate the tricky terrain of cross-border privacy issues.

"Conducting cross-border M&A transactions in the current climate is more challenging than ever - in addition to an economic slowdown and geopolitical concerns, businesses continue to face a rapidly changing and increasingly uncertain legal and regulatory landscape. So, staying up to date on the latest market trends and legal developments is critical."

Phoenix Strategy Group (https://phoenixstrategy.group) offers M&A support with services like:

• Building data governance frameworks
• Assessing and addressing privacy risks
• Providing ongoing compliance monitoring

"The FTC can hold an acquirer responsible for the bad data privacy practices of a company that it acquires."

This comprehensive approach ensures privacy compliance throughout every stage of the M&A process.

Related Blog Posts

• M&A Readiness: Common Questions Answered
• Why Incident Response Plans Matter for M&A Deals
• Data Privacy Due Diligence for Cross-Border M&A
• M&A Risks: Data Breach Compliance in Cross-Border Deals