Mitigating Cyber Risk in M&A
Mergers and acquisitions (M&A) are complex processes that require careful planning, research and execution. With the increasing prevalence of cyber threats, cybersecurity due diligence should be a crucial component of any M&A strategy. At the end of the day, companies want to validate that the transaction in question is not a buyout that involves a past cybersecurity breach.
Cybersecurity due diligence involves conducting an assessment of the target company’s cybersecurity posture. This includes evaluating its security policies, procedures and controls, identifying potential vulnerabilities, assessing the effectiveness of its security controls and understanding any past major cybersecurity incidents or breaches that are material to valuation exercise.
By performing cybersecurity due diligence, buyers can identify any potential risks associated with the acquisition and take appropriate measures to mitigate them, accept them, transfer them or avoid them altogether. This can include incorporating cybersecurity requirements into the acquisition agreement, implementing additional security controls or even walking away from the deal if the risks are too high.
For sellers, undergoing cybersecurity due diligence can help identify and remediate any potential vulnerabilities before going to market. This can increase the value of the company and make it more attractive to potential buyers.
Best Practices for Mitigating Cyber Risks During the M&A Process
Conduct a Cybersecurity Risk Assessment: As part of the due diligence process, it’s important to conduct a cybersecurity risk assessment to identify potential risks associated with the acquisition. This can include evaluating the target company’s security policies and procedures, assessing the effectiveness of its security controls and identifying any potential vulnerabilities.
Cybersecurity is a critical component of any business, and the risks associated with a cyber breach can be significant. For buyers, conducting cybersecurity due diligence can help the acquiring organization identify potential risks associated with the acquisition and take appropriate measures to mitigate them. For sellers, undergoing cybersecurity due diligence can help increase the value of the company and make it more attractive to potential buyers.
Incorporate Cybersecurity Requirements into the Acquisition Agreement: Buyers should consider incorporating cybersecurity requirements into the acquisition agreement, such as by requiring the target company to meet certain security standards or implement additional security controls. This can help mitigate potential risks and ensure that both parties are on the same page when it comes to cybersecurity.
Develop a Cybersecurity Integration Plan: After the acquisition is complete, it’s important to develop a cybersecurity integration plan to ensure that the target company’s security controls are effectively integrated with the buyer’s existing security program. This process can include conducting a gap analysis, implementing new security controls and developing a communication plan to ensure that all stakeholders are aware of the changes.
Evolve the Cybersecurity Program with the Changing Landscape: This includes updating the policies, procedures and processes to accommodate for the “new” integrated/acquired environment, operationalizing the processes accordingly, training employees on cybersecurity as well as any changes in the threat or compliance landscape as part of the transaction and governing the risk management practices to ensure identified risks are being managed appropriately.
Take Away: Ultimately, cybersecurity due diligence should be a crucial component of any M&A strategy. By following best practices for mitigating cyber risks during the M&A process, both buyers and sellers can ensure that they’re adequately protected from potential cyber threats.
