Cybersecurity due diligence is an important part of the merger and acquisitions process. Cyber risks discovered too late can result in costly data breaches. These can tarnish your reputation and result in serious regulatory and legal consequences.

Taking a cybersecurity approach to your merger or acquisition can keep deal terms accurate and surprise free, leading to fewer zero-day vulnerabilities, which are undiscovered cybersecurity issues that cyber criminals exploit before they can be patched.

Key Statistics on Cyber Risk in M&A

• In the manufacturing sector, 42% of M&A deals faced cybersecurity incidents, often due to legacy systems according to a RealiaQuest analysis.
• A report by Forescout found that 62% of executives believe acquiring new companies introduces significant cybersecurity risks and that cyber risk is their biggest post-acquisition concern.
• The same Forescout report found that 53% of respondents experienced critical cybersecurity issues that put the M&A deal in jeopardy.
• 52% of respondents reported discovering major cybersecurity risks during post-closing integration, Infoysys reports.
• An undisclosed data breach is an immediate deal breaker, 73% of respondents said in an Infosys report.
• In our experience, a bad actor is typically already in the environment and the legacy company has already been compromised for months or even years.

Real world case study: A ransomware attack in the post-acquisition stage of the 2022 Change Healthcare-UnitedHealth Group merger compromised the data of over 100 million individuals, costing billions in damages.

Cybersecurity M&A Due Diligence

Cybersecurity due diligence in a merger or acquisition identifies cyber risks and other security vulnerabilities such as data privacy breaches, compliance issues or vendor management risks. Services may include:

• Forensic analysis of past security breaches
• Technical audit
• Attack surface mapping

Importance of Cyber Due Diligence during M&A

A data breach during a merger or acquisition can threaten critical business assets and functions. Without proper cybersecurity due diligence, sensitive information and operations are at risk:

• Customer information: Exposed or compromised data can lead to regulatory fines and loss of client trust.
• Credit card data: Payment data breaches can result in costly remediation and legal liabilities.
• Operations: Disrupted systems or compromised networks can halt business functions and delay integration.
• Intellectual property: Theft of proprietary technology or trade secrets can reduce competitive advantage and deal value.

Conducting thorough cyber risk assessments helps identify these vulnerabilities before they impact the transaction, giving buyers and sellers confidence that deal terms reflect the true risk landscape.

Benefits of Cybersecurity M&A for Buyers

There are a host of benefits to taking steps to mitigate cyber risks during your due diligence reviews.

• Reduce chances of overpayment – If you don’t address cyber risks during due diligence as the acquiring party, you run the risk of overpaying. Discovering security issues during this process enables buyers to adjust deal terms to account for the potential expense it would take to mitigate them.  
• Improved vendor risk management – Investigating third-party vendors and terminating high-risk vendors before they’re inherited from the seller can help a potential buyer improve vendor compliance.
• More informed decision – With more information, and particularly when the cyber and data security risks outweigh the benefits of a merger or acquisition, a buyer will have more insight into whether they should stick with a deal or walk away.

Who Needs Cyber Risk Assessments Most during M&A?

Certain industries and businesses benefit more from a more in-depth assessment:

• High Value Transactions – Leveraged buyouts, mega-mergers and transactions that make up a significant portion of the acquiring partner’s market capitalization may require a more in-depth analysis and solution.
• Technology Companies – Tech companies, particularly those engaged in emerging technologies such as artificial intelligence (AI) or the IoT, have complex IT infrastructures and valuable assets, making them an ideal target for cyber criminals. New and emergent tech also tends to be vulnerable to cyber attacks because of their innovative nature and the risk of undiscovered holes in security.
• Cross-Border M&A Deals – International M&A deals are subject to complex foreign data protection laws, creating unique legislative and regulatory challenges for both the buyer and seller side.
• High Risk Industries – Industries like finance, energy, government, healthcare, legal and retail regularly hold enormous amounts of sensitive data, putting them in a risky situation from a cybersecurity standpoint. These industries benefit from a thorough cyber risk assessment due to their additional regulatory responsibilities.

Anders Technology advisors work closely with clients to identify security threats and neutralize them, keeping critical business functions moving forward and growth trajectories on track. Learn how our advisors can help protect your merger or acquisition, and the associated cost, by requesting a meeting below.