Impact of the LGPD on Mergers and Acquisitions (M&A) transactions

With the entry into force of the General Data Protection Law (LGPD), the mergers and acquisitions scene in Brazil underwent many transformations. Therefore, data security and privacy became central aspects in any M&A operation, requiring that all parties involved fully comply with current legislation.

In this article, we will show how the LGPD affects these transactions and what are the main points of attention to ensure legal compliance.
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The importance of the LGPD in Mergers and Acquisitions

The LGPD brought a series of new responsibilities to companies with regard to the processing of personal data. During the merger or acquisition process, confidential and sensitive information is shared, making it essential that both parties adopt appropriate data protection measures.

These measures are not only recommended, but mandatory. Any implementation failure can result in serious consequences, such as heavy fines and damage to the buying company's reputation.
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Preliminary agreements and data protection clauses

In the early stages of an M&A transaction, such as drafting a Memorandum of Understanding or a Letter of Intent, it is essential to include specific clauses on confidentiality and data protection.

These preliminary agreements establish the rules for information sharing, ensuring that the buying company can evaluate the seller's internal processes with regard to the processing of personal data. Ensuring that both parties are aware of their legal obligations from the start is a crucial measure to avoid future complications.
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LGPD compliance audit

One of the most critical phases of a merger and acquisition transaction is auditing or due diligence. At this stage, the buying company must conduct a thorough assessment of the seller's data protection practices. The purpose is to verify that the operations are in compliance with the LGPD and that all security mechanisms are properly implemented.

Among the most important points to be analyzed are:

• Types of data collected by the company.
• Treatment of sensitive data, such as health or financial information.
• Information security, including encryption and access control mechanisms.
• International data transfer and the applicable legal guarantees.

Ensuring compliance with these practices not only protects the buying company from legal liabilities, but also directly influences the final amount of the transaction, since compliance failures can result in penalties.
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Impact on the value of a company

Compliance with the LGPD can significantly impact the value of an M&A transaction. Companies that demonstrate a high level of care for privacy and data security tend to be valued more highly, while those that present risks or failures in implementing the law may have their value reduced.

Throughout the audit, the risks identified may lead to adjustments in the purchase amount, since the buying company will need to invest in corrective measures to ensure that all operations are in compliance with the LGPD.

Contractual Clauses and Post-Acquisition Responsibilities

In the final phase of the transaction, during the drafting of the definitive contracts, it is essential that the data protection clauses are well defined. These clauses must address both compliance with the requirements of the LGPD and the responsibilities of both parties after the conclusion of the deal.

Special attention should be paid to the fact that the acquiring company may inherit legal liabilities resulting from data processing failures by the acquired company. Therefore, ensuring the inclusion of specific clauses on shared responsibility and the adoption of measures to mitigate possible risks is essential for a secure transaction.

The LGPD brought a new paradigm to the mergers and acquisitions market in Brazil, making compliance with data protection an essential factor in every phase of the transaction. The buying company must ensure that the seller complies with the requirements of the law, from preliminary agreements to auditing and formalizing the contract.

Therefore, it is essential that all parties involved adopt a judicious and preventive approach, ensuring that the transaction is aligned with data protection regulations. Attention to these aspects not only guarantees the legal security of the operation, but also preserves the reputation of the companies involved.

If your company is undergoing an M&A process or needs to ensure compliance with the LGPD, count on Vennx's expertise. Our expert advisors can help you implement the best data protection practices, mitigating risks and ensuring that your transaction takes place securely and in full compliance with current legislation.

Get in touch and learn more about how we can help your business.

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