Numerous companies are working on strategies for acquisitions, mergers or other transactions this moment, as business leaders search to expand following the slowdown in pandemics, along with new models for business come up. However, the deterioration of cybersecurity over the last year suggests the risk of these M&A transactions are more prone to the likelihood of cybersecurity-related incidents.
While mergers and acquisitions contain various factors contributing to their risk and affecting the making of decisions, the changing cyber threat scenario makes the process even more complicated. There are chances that the acquiring company might skip on these risks. Thus, to help these companies continue reading this post where we have discussed the importance of Cybersecurity measures during M&A while discussing some challenges and strategies during the process.
Cybersecurity Risk in M&A
- Regulators across the globe are increasingly scrutinizing deals to safeguard the personal information of citizens, ultimately minimizing the security threat.
- Fines for non-compliance have been rising as regulators seek to establish standards.
- The acquisition of targets with inadequate security or privacy practices can create distrust among customers.
- Dormant hackers in the target’s network could discover a new chance to strike following M&A
- Existing vulnerabilities and poor cyber cleanliness of target could be passed on and must be remedied
- The threat of insiders has increased – such as targeted attacks on high-ranking executives, negligence, and deliberate attempts to sabotage.
- Some unreported data breaches can stop or deter the sale.
Importance of cybersecurity in M&A
When businesses merge or buy other companies, they join their assets together that include their networks, digital infrastructure and data, making cybersecurity an essential intervention factor. This integration can create new security risks and issues that must be effectively addressed. Find out more below:
Make a deal with confidence
A cybersecurity due diligence evaluation can help identify any security potential and liabilities along with the cost to remedy them. This will give you crucial information to aid in negotiations and determine if the acquisition has the capacity to meet your thesis.
Optimize your integration or separation plans
If you are proactive about analyzing the security challenges you could encounter during the process of merger and acquisitions, create a safe, cost-effective, and secure strategy that covers your overall goals.
Focuses on value creation
A continuous security focus throughout the deal lifecycle can help ensure your investment is protected, optimize security expenditure and help ensure that your value-creation plans can be realized.
Maximize your return on investment
A consistent and clear message on cybersecurity that holds against the scrutiny of buyers will allow you to maximize potential and reduce the timeframe of your selling process.
M&A Cybersecurity Framework
Creating cybersecurity plans for M&A from the beginning is essential. During the screening phase be sure to have a key person in the company who will look after the privacy and cybersecurity risks. Information security managers in the company are the most suitable authorities to handle these procedures. Engaging them from the beginning of the deal is crucial to ensure a secure deal. Also, be sure to identify the target’s information security team’s composition and skills.
The purpose of due diligence has always been to reduce risk for all the parties involved. It is essential to determine strategies to create value which will boost returns and ultimately, assist in quantifying the overall value. Conduct security assessments, risk assessments and penetration tests without missing out any point mentioned in the agreement. Examine the compliance of regulations and privacy requirements. Also, be aware of past and current findings about security and privacy breaches.
There is a great deal of media coverage at the announcement phase that can trigger alarms for malicious groups, driving potential threats. The risk increases substantially from this point from now, which needs careful monitoring. Basically, this is the point where you require strategic and tactical decisions.
The last stage of the deal includes the privacy and cybersecurity steps to make it successful. Integration of cybersecurity in this phase is often the most difficult phase of the deal, since both parties try for ways to integrate their capabilities across companies.
Best Strategies To Manage Cybersecurity Risks In M&A
Check out below:
Need a security evaluation of the targeted firm
Prior to acquisitions, the acquiring company must get an evaluation of the target company whether it’s a specifically designed audit, security posture assessment, or an enterprise assessment. The acquiring company must also ask for information related to security or other compliance like exposures, compromises and so on.
Verify that target company has integrated security software
The acquiring company must find out if the target company has integrated security in its software. Its absence means that the buying company is committing to the unplanned future of remediation projects to fix. Buyers don’t demand to be perfect however if there’s more than the expected amount of issues to be addressed the buyer’s view of the deal could shift.
Engage IT and cybersecurity teams during the early process
Mostly, the IT and Cybersecurity teams are not involved in mergers and acquisitions due to keeping the circle of influence small. However, it’s not uncommon that a target for mergers or acquisitions is plagued with insecure IT and security which could cost millions of dollars to correct. It is crucial to involve these departments in the earliest possible time and to discover the weaknesses that are most prevalent.
Know the risk associated with the data environment
The acquiring companies that do not conduct due diligence right from the beginning probably won’t be aware of the different types of information environments that they’re involved in. The problem with not fully understanding the risks associated with information environments is that you don‘t know what kinds of security controls the target companies have put in place.
Overall, cybersecurity is an essential aspect when it comes to M&A transactions to safeguard sensitive information and evaluate the company’s security position. It guarantees that everything is in compliance with regulation and reduces disruptions to operations, while maintaining the trust of customers. By prioritizing cybersecurity in an M&A process, businesses are able to lower risks, boost diligence efforts and aid in the smoother integration of data and technology systems.