Company XYZ is in negotiations to acquire Company ABC for $1.2millon. Due diligence activities have uncovered systemic security issues in the flagship product of Company ABC. It has been established…

Transferring the risk through insurance or contract indemnification would not eliminate the $1.6M remediation liability and is impractical when the defect is this systemic and well-documented.

Accepting the risk means acknowledging and proceeding anyway, which is economically irrational when the cost to fix the problem exceeds the total purchase price.

Mitigating the risk would require funding the $1.6M rewrite, which costs more than the acquisition itself and results in a guaranteed net loss.

Risk avoidance means eliminating the risk by not engaging in the activity that introduces it. Since the remediation cost of $1.6M exceeds the $1.2M acquisition price, proceeding would result in a net loss even before accounting for operational risk. Abandoning the acquisition removes the risk entirely and is the only financially defensible recommendation.