Strategic Context for Platform Security in Ecommerce M&A

Ecommerce mergers and acquisitions (M&A) are surging globally, with India emerging as a dynamic hub. In 2024, India’s ecommerce M&A activity exceeded $10 billion, driven by consolidation in D2C brands, logistics, and marketplace platforms. This growth reflects companies’ ambitions to capture market share in a $5 trillion global ecommerce market. However, Platform Security has become a board-level priority in these transactions. Cybersecurity risks directly impact deal valuation, regulatory clearance, and post-merger integration, making robust Platform Security assessments critical.

Overlooking cybersecurity risks can lead to severe consequences. The 2018 Marriott-Starwood acquisition, where undisclosed data breaches triggered $70 million in fines, and a 2023 Indian ecommerce breach exposing customer data, highlight how weak Platform Security can result in financial penalties, reputational damage, and post-deal disputes. Corporate development leaders must prioritise Platform Security to safeguard deal value and ensure successful outcomes in ecommerce M&A.

Key Platform Security Risks to Assess

Evaluating Platform Security risks during ecommerce M&A demands a structured approach to uncover vulnerabilities that could derail deals. Below are the critical categories to assess:

• Data Protection & Privacy Compliance

Compliance with data protection laws, such as India’s Digital Personal Data Protection (DPDP) Act and the EU’s General Data Protection Regulation (GDPR) for cross-border deals, is non-negotiable. Acquirers must verify user consent mechanisms, data retention policies, and adherence to sectoral privacy standards. Non-compliance risks fines up to 7% of annual revenue under GDPR or ₹250 crore under DPDP, significantly affecting deal economics.

• Cybersecurity Posture

A comprehensive tech audit must assess the target’s cybersecurity posture, including endpoint security, firewall configurations, intrusion detection systems, and DevSecOps practices. Weak employee access protocols, such as unmonitored admin accounts or lack of multi-factor authentication, can compromise Platform Security. Robust defenses are essential to mitigate cyber threats.

• Third-Party Dependencies

Ecommerce platforms rely on third-party APIs, SaaS vendors, and third-party logistics providers (3PLs). These integrations introduce vulnerabilities, such as unpatched software or insecure data transfers. Acquirers must map all dependencies and evaluate their security protocols to prevent supply chain attacks that undermine Platform Security.

• Incident History

Full disclosure of past cybersecurity incidents, including data breaches or ransomware events, is critical. Acquirers should request detailed reports on incident mitigation and verify whether vulnerabilities persist. Undisclosed incidents can trigger regulatory penalties and erode customer trust, weakening Platform Security post-acquisition.

• IP & Source Code Ownership

Confirming ownership of the tech stack is vital to avoid post-deal disputes. Acquirers must verify that proprietary code is free of open-source components with restrictive licenses, such as GPL, which could limit commercialisation. A tech audit should include a source code review to identify intellectual property risks that could impact Platform Security.

• Cloud Security Architecture

Most ecommerce platforms operate on cloud infrastructure like AWS, Azure, or GCP. Acquirers must assess cloud configurations, encryption standards (e.g., AES-256), and multi-tenancy risks. Misconfigured cloud environments can expose sensitive data, making robust cloud Platform Security a critical due diligence focus.

1. Due Diligence & Tech Audit Best Practices

Effective due diligence in ecommerce M&A requires specialised tech audits to identify hidden liabilities. Deploy red-team assessments and vulnerability scans to proactively uncover weaknesses in Platform Security. Forensic log analysis can reveal past intrusions or unauthorised access, providing a clearer picture of cybersecurity risks. Legal diligence should scrutinise platform terms and conditions, customer consent flows, and breach notification policies to ensure compliance with data protection laws like the DPDP Act.

For Indian targets, evaluating DPDP readiness is essential, given the act’s stringent requirements. Acquirers should also investigate any pending regulatory inquiries that could escalate into fines or reputational damage. A comprehensive tech audit, combining automated tools and manual reviews, ensures a thorough assessment of Platform Security.

2. Strategic Implications for Platform Security in M&A Structuring

Platform Security risks uncovered during due diligence directly shape deal structuring and execution. Key implications include:

• Deal Pricing and Holdbacks: Identified cybersecurity risks, such as outdated encryption or DPDP non-compliance, can justify price reductions or escrow arrangements to cover remediation costs.
• Material Adverse Change (MAC) Clauses: Significant Platform Security vulnerabilities may trigger MAC clauses, enabling buyers to renegotiate or exit deals if risks threaten value.
• Post-Merger Integration (PMI): Weak cybersecurity posture may delay PMI, requiring immediate investments in Platform Security upgrades. Integrating cybersecurity teams into the integration office ensures seamless remediation.
• Cyber Insurance and R&W Updates: Acquirers should review cyber insurance coverage and update representations and warranties (R&W) to address Platform Security liabilities, protecting against undisclosed risks.

Illustrative Deal Scenarios

• Scenario A: Red Flag in Cross-Border Ecommerce M&A

A global retailer acquiring an Indian D2C platform discovers during a data protection audit that the target holds legacy user data without valid consent, violating DPDP and GDPR. This exposes the deal to potential fines exceeding ₹100 crore, stalling negotiations. The buyer demands a holdback, but unresolved Platform Security issues lead to a re-evaluation of the deal structure, underscoring the critical role of data protection in cross-border ecommerce M&A.

• Scenario B: Mitigated Risk Through Proactive Tech Audit

A strategic buyer targeting an online grocery platform identifies outdated encryption protocols and weak admin access controls during a tech audit. Instead of withdrawing, the buyer negotiates a 10% price reduction and develops a post-close remediation roadmap, allocating funds to upgrade encryption, implement multi-factor authentication, and conduct an independent penetration test within 90 days. This proactive approach strengthens Platform Security and preserves deal value.

Conclusion

Platform Security is a strategic imperative in ecommerce M&A, not merely a technical concern. By integrating comprehensive data protection assessments, cybersecurity audits, and tech audit outcomes into early deal evaluations, corporate development leaders and M&A advisors, supported by firms like LawCrust, can identify hidden liabilities, customise deal structures, and protect value. Prioritising Platform Security from the outset mitigates cybersecurity risks, ensures regulatory compliance, and paves the way for sustainable growth in the dynamic ecommerce ecosystem.

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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