Addressing Cybersecurity Liabilities in Ecommerce M&A: A Strategic Imperative

India’s ecommerce sector is at a pivotal juncture, with mergers and acquisitions (M&A) driving unprecedented growth. However, cybersecurity liabilities have emerged as a critical concern for senior leaders, CXOs, and M&A deal teams. This article, crafted from the perspective of a senior hybrid consultant with expertise in management, finance, legal, and technology, offers a strategic roadmap to navigate cyber risks in ecommerce M&A, ensuring robust due diligence, optimised deal structuring, and seamless post-merger integration.

Industry Context: Surge in Ecommerce M&A and Cybersecurity Liabilities

Post-2023, India’s ecommerce M&A activity has soared, fuelled by consolidation in direct-to-consumer (D2C) brands, digital logistics, and social commerce enablers. The sector, projected to reach $200 billion by 2026, attracts private equity and global aggregators seeking to acquire niche players. Yet, the digital-first nature of ecommerce handling vast customer data, payment details, and proprietary intellectual property amplifies cyber risks. Data breaches, ransomware attacks, and stringent legal mandates under the Digital Personal Data Protection Act (DPDP Act) and Information Technology (IT) Rules have elevated cybersecurity liabilities to a critical deal factor, impacting valuation, deal structure, and post-merger success.

1. Recent Trends and Trigger Events Driving Cybersecurity Liabilities (Mid-2025)

India’s ecommerce sector has faced high-profile cybersecurity incidents, including large-scale user data leaks exposing millions of records and seller panel breaches compromising vendor information. These incidents underscore the vulnerability of digital ecosystems and the growing importance of addressing cybersecurity liabilities in M&A.

Regulatory developments have intensified scrutiny. The DPDP Act, enforced in 2023 with draft rules released in January 2025, mandates robust data protection measures, including encryption, 72-hour breach reporting, and consent mechanisms. The Securities and Exchange Board of India (SEBI) has introduced cyber governance norms for listed entities, requiring audit trails and regular audits. The Ministry of Electronics and Information Technology (MeitY) mandates cybersecurity audits for digital platforms, adding compliance pressure. In cross-border ecommerce M&A, regulations like the Foreign Exchange Management Act (FEMA), General Data Protection Regulation (GDPR), and DPDP Act necessitate rigorous cyber due diligence to address jurisdictional complexities and ensure legal compliance.

2. Key Cybersecurity Liabilities in Ecommerce M&A

Acquiring an ecommerce entity means inheriting its digital footprint, including potential cybersecurity liabilities. Key risks include:

• Inherited Vulnerabilities: Unpatched systems, outdated content management systems (CMS), or exposed APIs create exploitable entry points for attackers.
• Data Security Gaps: Lack of encryption, weak access controls, or non-compliance with DPDP Act’s data localisation requirements expose acquirers to breaches and penalties.
• Intellectual Property (IP) Theft Risks: Inadequate protection of source code, proprietary algorithms, or digital assets can lead to IP theft, fake apps, or counterfeit seller issues, eroding brand value.
• Third-Party Exposure: Reliance on vendors for warehousing, payment processing, or ad tech introduces risks from unsecured third-party access, broadening the attack surface.
• Compliance Red Flags: Non-compliance with DPDP Act, GDPR, or IT Rules such as missing audit trails or inadequate consent mechanisms can trigger fines up to ₹50 crore under DPDP.

3. Strategic Due Diligence Framework to Mitigate Cybersecurity Liabilities

A robust pre-deal due diligence process is essential to assess cybersecurity liabilities. The following framework ensures comprehensive risk evaluation:

1. Cyber Audit: Conduct a thorough audit of the target’s IT infrastructure, APIs, cloud dependencies, and third-party vendor security postures. Penetration testing and vulnerability assessments identify hidden weaknesses.
2. Data Mapping: Map personal data flows to ensure compliance with DPDP Act’s localisation and consent requirements, assessing storage and processing practices.
3. Incident Review: Analyse incident logs, past penetration tests, and breach records to gauge the target’s cyber maturity and historical vulnerabilities.
4. Policy Validation: Verify privacy policies, user consents, and terms and conditions align with DPDP and GDPR standards.
5. Access Control Evaluation: Scrutinise employee access controls, particularly in remote or hybrid teams, to enforce least-privilege principles.
6. Cyber Maturity Scoring: Implement a scoring system to quantify risks and guide negotiations, supported by a legal compliance review.
7. Cross-Border Analysis: In cross-border deals, examine jurisdictional conflicts between GDPR and DPDP, focusing on data transfers and localisation.

Engaging cybersecurity advisors and legal counsel, such as those from LawCrust, ensures a thorough assessment of cybersecurity liabilities.

4. Deal Structuring and Valuation Adjustments for Cybersecurity Liabilities

Cybersecurity liabilities influence deal structuring and valuation. Strategic adjustments include:

• Indemnity Clauses: Incorporate specific indemnities for cyber risks, covering breaches or non-compliance penalties post-closing.
• Escrow Arrangements: Allocate funds in escrow to address unresolved data security issues, such as non-compliant data storage or pending audits.
• Representations and Warranties: Require affirmations of data security compliance and disclosure of past breaches or vulnerabilities.
• Holdback Provisions: Tie a portion of the purchase price to post-close legal compliance certification under DPDP and GDPR.
• Valuation Discounts: Apply discounts (e.g., 10-15%) for unaddressed cybersecurity liabilities, such as vulnerabilities or non-compliance risks.
• Cyber Liability Insurance: Secure insurance to hedge post-deal cyber risks, covering breach costs and fines.
• Earn-Out Structures: Link earn-outs to cybersecurity KPIs, such as MeitY audit clearance or DPDP-compliant system implementation.

These measures, customised to the deal’s risk profile, protect value and align incentives for remediation.

5. Post-Merger Integration to Address Cybersecurity Liabilities

Effective post-merger integration (PMI) is critical to mitigate cybersecurity liabilities. Recommended steps include:

1. Cybersecurity Integration Team: Form a dedicated team to oversee network segmentation, access control harmonisation, and incident response planning.
2. Data Security Enhancement: Implement encryption, tokenisation, and robust access controls to secure personal data, aligning with DPDP requirements.
3. Employee Retraining: Mandate training on data security practices, focusing on phishing awareness and secure remote access, especially in hybrid setups.
4. Vendor SLA Revision: Update vendor service-level agreements to enforce DPDP-compliant data handling and cybersecurity standards.
5. Legal Framework Alignment: Harmonise privacy notices, consent mechanisms, and legal compliance policies with the acquirer’s standards, ensuring transparency.

Continuous monitoring and audits, supported by firms like LawCrust, ensure sustained compliance and resilience.

Illustrative Examples of Cybersecurity Liabilities in Action

Example 1: A leading ecommerce aggregator paused a mid-sized D2C acquisition after a forensic audit revealed data storage on non-compliant overseas servers, violating DPDP localisation rules. The deal value was reduced by 12% to account for remediation costs and potential fines, highlighting the financial impact of cybersecurity liabilities.

Example 2: A social commerce startup faced a ₹20 crore DPDP penalty post-acquisition due to unauthorised third-party ad tracking. This incident emphasises the need for rigorous due diligence and post-merger surveillance to uncover hidden cybersecurity liabilities.

Conclusion: Securing Ecommerce M&A Against Cybersecurity Liabilities

Cybersecurity liabilities are no longer technical afterthoughts they are deal-breakers in ecommerce M&A. Unaddressed vulnerabilities, non-compliance with DPDP Act or GDPR, or weak data security measures can derail transactions, erode valuation, and trigger legal penalties. Senior leaders must integrate cyber risk management into core M&A playbooks, alongside finance, tax, and legal streams. By prioritising robust due diligence, strategic deal structuring, and proactive post-merger integration, supported by trusted advisors like LawCrust, boards and CXOs can safeguard deal value and ensure long-term resilience. Secure the deal before the breach secures you.

About LawCrust

LawCrust Global Consulting Ltd. delivers cutting-edge Hybrid Consulting Solutions in Management, Finance, Technology, and Legal Consulting to ambitious businesses worldwide. Recognised for our cross-functional expertise and hybrid consulting approach, we empower startups, SMEs, and enterprises to scale efficiently, innovate boldly, and navigate complexity with confidence. Our services span key areas such as Investment Banking, Fundraising, Mergers & Acquisitions, Private Placement, and Debt Restructuring & Transformation, positioning us as a strategic partner for growth and resilience. With an integrated consulting model, fixed-cost engagements, and a virtual delivery framework, we make business transformation accessible, agile, and impactful.

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