Mergers and acquisitions are thrilling times – new opportunities, potential for growth, and the promise of something even bigger. But amidst all that excitement, one critical aspect must never be overlooked: cybersecurity. Failing to address security risks in the target company can derail the whole process or lead to costly surprises after the deal is done. Neglecting cybersecurity due diligence can be a recipe for disaster.
Why Cybersecurity Due Diligence Matters
Think of cybersecurity due diligence as a security check-up for the company you’re acquiring. Just like you wouldn’t buy a house without an inspection, you shouldn’t finalize an M&A deal without understanding the target’s cybersecurity posture. Here’s why:
Uncover Hidden Risks: A data breach at the target company can be a huge financial burden. Data breaches can cost millions, damage your reputation, and even lead to regulatory fines. A study by IBM found the average total cost of a data breach in 2023 was a whopping $4.45 million. That’s a hefty price tag for a security oversight.
Compliance Nightmares: Regulations like GDPR and CCPA have teeth. If the acquired company isn’t compliant, you could be facing hefty fines. Due diligence helps identify potential compliance risks.
Reputational Damage: A successful attack after the acquisition is PR poison. It can damage your brand and erode customer trust. Due diligence helps you avoid nasty surprises. Protecting your brand, and the acquired company’s reputation, is key.
Pre-Deal Homework: What to Scrutinize
Take Stock of Their Tech: Outdated systems? Legacy software rife with vulnerabilities? That’s a red flag. Understand their entire technology landscape.
Culture Matters: Talk to employees. Is cybersecurity baked in, or an afterthought? A careless culture is hard to fix post-merger.
Policy Check: Do robust security policies even exist? Are they enforced? A company without clear rules is an open target.
Incident History: Ask about past breaches or near-misses. It reveals their security posture and how they respond to threats.
Third-Party Ties: In modern business, your risk is your vendors’ risk too. Assess their supply chain security practices.
Integrating Security Due Diligence: A GRC Pro’s Tips
So, how do you actually integrate cybersecurity due diligence into your M&A process? Here are some key steps:
1. Start Early: Don’t wait until the last minute! Build security due diligence into the planning stages of the M&A process.
2. Assemble the A-Team: Involve your security experts early on. They’ll know what questions to ask and what red flags to look for.
3. Gather Information: Request security policies, incident response plans, and details of past breaches from the target company.
4. Conduct Assessments: Consider penetration testing and vulnerability scans to identify potential weaknesses in the target’s systems.
5. Negotiate and Mitigate: Based on your findings, negotiate the terms of the deal or develop a plan to address any security risks after the acquisition.
See David Monnier’s (on Forbes) take on this: Link
Remember, security due diligence is an ongoing process, not a one-time event. As the M&A progresses, keep monitoring and adapting your security posture.
Benefits Beyond Risk Mitigation
Here’s the good news: robust cybersecurity due diligence isn’t just about avoiding trouble. It can actually have some positive side effects:
- Identify Acquisition Value: Uncovering strong security practices can add value to the target company.
- Negotiate Better Deals: Knowing potential security risks can give you leverage during negotiations.
- Smoother Post-Merger Integration: By proactively addressing security concerns, you can ensure a smoother transition for both companies.
The Takeaway
Cybersecurity due diligence in M&A isn’t glamorous, but it’s essential. By taking these steps, you can turn a potentially risky situation into a secure and successful merging of kingdoms… I mean, companies!
Want to Learn More?
Here are some resources to keep you on top of your M&A cybersecurity game:
