When a company acquires another, it's a strategic move to ensure continuity and growth. However, this transaction can be a complex and risky affair, especially when it comes to cybersecurity. The acquired company's weaknesses can become a liability, compromising the acquirer's strong security posture. This should be a critical consideration in M&A transactions, as it can have consequences for the acquirer's reputation, finances, and operations.

According to a survey, 62% of participants revealed that their company faces cybersecurity risks by acquiring new companies, and cited cyber risk as their biggest concern post-acquisition. 

In this article, we explore the important role of cybersecurity in M&A and provide guidance on how companies can protect their assets and reputation.

Understanding the Risks in M&A

Mergers and acquisitions are a sensitive time for a company data. Leakage of sensitive company data can hinder negotiations, making the companies considering an M&A prone to certain risks. 

Here are some common risks associated with M&A transactions:

• Data Breaches: Combining two organizations' data increases the attack surface. This makes it more vulnerable to cybercriminals. Unauthorized access to sensitive information, like customer data or can have serious consequences. In 2019, an IBM Institute for Business Value survey of 720 executives found that 1 in 3 experienced data breaches during M&A integration. 

• Network Vulnerabilities: Integrating two networks can expose previously unknown vulnerabilities, providing attackers with new entry points. This can lead to malware infections, ransomware attacks, or other types of cyber threats.

• Internal Threats: M&A transactions often involve changes in personnel, which can lead to insider threats. Disgruntled employees or contractors may exploit their access to sensitive information or systems, causing harm to the organization.

Case Studies of Data Breaches in M&A

Below are some data breaches that affected mergers and acquisitions:

• Yahoo's Data Breach: Yahoo experienced two major data breaches in 2013 and 2014, which exposed information from 3 billion user accounts. These breaches were not fully disclosed until 2016, during the acquisition process with Verizon. As a result, Verizon reduced the acquisition price by $350 million from the originally agreed-upon price.

• Starwood's Data Breach: Starwood Hotels experienced a data breach that exposed the personal information of approximately 500 million guests. This breach was discovered after Marriott International had completed its acquisition of Starwood Hotels in 2016. The breach had severe implications, including regulatory fines, reputational damage, and increased scrutiny on Marriott's cybersecurity practices.

Cybersecurity Due Diligence in M&A

When two companies merge, cybersecurity due diligence is often overlooked, but this mistake can have serious implications.

Smaller companies may have limited cybersecurity measures in place, making it important to identify and address potential vulnerabilities before the merger is complete. 

By conducting cybersecurity due diligence, acquirers can:

• Protect themselves from inheriting unforeseen cybersecurity liabilities
• Ensure compliance with regulatory requirements
• Maintain business continuity and reputation
• Identify potential cost savings through consolidation of security measures.

The cybersecurity due diligence process involves several key steps including:

• Asset Identification and Valuation: Identify critical assets, data, and intellectual property, assess their value and importance to the business, and determine potential risks. This includes sensitive data (customer information, financial data, intellectual property) and critical systems and infrastructure.

• Risk Assessments and Vulnerability Scanning: Conduct a thorough risk assessment to identify potential vulnerabilities, and perform vulnerability scanning and penetration testing to detect weaknesses. Additionally, evaluate the target company's incident response and disaster recovery plans for adequacy and effectiveness.

• Review of Security Policies and Procedures: This step involves evaluating the target company's security policies, procedures, and standards to ensure they align with industry best practices and regulatory requirements. Employee awareness and training programs are also assessed to ensure they are adequate and effective.

• Evaluation of Third-Party Vendor Relationships: Assess the target company's relationships with third-party vendors and service providers to evaluate their security practices and compliance with industry regulations, identifying potential risks and liabilities and ensuring vendors meet the same security standards.

Final Thoughts 

Cybersecurity is an essential consideration in M&A transactions. Companies need to assess and address cybersecurity risks to protect their assets and reputation, ensuring a smooth and secure merger. Cyberkach is your trusted partner for cybersecurity solutions, offering resources, training, and expertise. Contact us for more information and subscribe to the Cyberkach blog to stay updated on the latest cybersecurity insights.