While Mergers and Acquisitions already involve completing many assessments during the Due Diligence (DD) phase to measure and ascertain the level of risk that impacts the decision-making process, cybersecurity risks and maturity are often an afterthought process. If organisations bother to complete a DD process for customers, products, financial, capabilities and IT, and as Cybersecurity issues impact the business overall, why is cybersecurity assessment an afterthought?
Businesses are increasingly giving cybersecurity the attention it deserves during daily operations. One of the most significant risks of missing cybersecurity during M&A is ending up with an acquired organisation that needs extensive remediation work to bring it to the acquiring organisation’s level. Significant security gaps or immature security postures in the target firm can significantly impact the cost of the acquisition.
The M&A cybersecurity assessment should not be the sole responsibility of the acquiring company. To make the transition as smooth and possible, the two firms must be open and collaborative at every stage. The process needs to clearly define five key areas for effective cyber risk management during the M&A process:
A Cybersecurity assessment for M&A must focus on the following areas:
Identifying existing data breaches or APTs within the target company is essential to prevent future exploitation and mitigate risks. The acquired organisation may already have cybersecurity threats inside its network, such as undetected malware or malicious attackers. The acquiring firm must identify and remediate pre-existing vulnerabilities to protect businesses and the supply chain.
The M&A process means two sets of information assets are in scope. The acquiring company, therefore, must ensure that both parties have taken appropriate steps to identify, classify and protect the data of both firms appropriately.
The acquiring company may have more mature documentation standards, including policies and practices, especially for small—to medium-sized companies. The gap between policies and procedures makes it hard for acquiring companies to assess the cybersecurity risk of the acquisition, which may expose them to cyber threats.
While a merger and acquisition process may have a defined process on paper, firms can expect disruption as they work out new roles and responsibilities and attempt to sync them.
A comprehensive cybersecurity assessment helps uncover hidden costs associated with potential security breaches, vulnerabilities, and compliance issues. This understanding is crucial for accurate valuation and informed decision-making.
To approach the various risks of the M&A Process correctly and provide both acquiring and acquired firms with a good, realistic approach to the risk, we approach M&A as follows:
- Assess the posture of the acquiring organisation
- Assess the posture of the target organisation
By using the same method and standard to measure both organisations, it will be possible to map and understand the existing gaps. We have, through working on a number of M&A deals, developed a standard process to detect risks and provide realistic costs to uplift and sync both organisation's maturity. Our M&A assessment includes:
- Review the security maturity posture of the target organisation
- Review Security policies and procedures
- Review the target organisation’s security practices in accordance with one of the accepted frameworks.
- Conduct a full Red Team assessment to uncover any weaknesses
- Complete a thorough dark web assessment to uncover any unknown breaches
Finding vulnerabilities, issues, and risks is not enough; creating a roadmap to remediate them and estimating the rough order of magnitude of the cost, including any missing products and technology, is also essential. The cost and time required to fix serious cybersecurity issues can significantly impact the fully integrated system.
Cybersecurity assessments benefit both sides of the M&A process. A mature cybersecurity capability can make a target firm more attractive, and cybersecurity best practices on both ends make for a smoother, more secure transition period.
At the earliest stage of the M&A lifecycle, the acquiring firm must review the passive security and hidden data breaches for any potential target businesses.
The acquirer needs to learn about the security posture and any hidden data breaches of the target firm(s). Before making an offer for an organisation, the acquiring firm should do a passive reconnaissance to assess the target firm’s network and security maturity. This is essential across all industries, including M&A. Get in touch with our experts to complete a passive reconnaissance of cybersecurity through our dark web reconnaissance.
The acquirer should review the results of this search and conduct a risk assessment to understand the potential risks of acquiring the target company.
Companies must discover the probability of data breaches because a merger can make both companies vulnerable to further cyber-attacks that affect both organisations. A successful data breach could damage both businesses' business operations, trust, reputation, and revenue.
This is the most critical time to conduct a full end-to-end review of the target organisation; per our M&A process, we complete a thorough review covering people, processes and technologies. Some of the areas we cover are but not limited to:
· Review Target organisation security maturity: review against well-established frameworks, such as NIST Cyber Security Frameworks and ISO/IEC 27001
· Review Information Security Policies and Procedures: review core policies that should exist, for example, information security policy, acceptable use policies, incident response plans, 24/7 Incidents and Security events monitoring
· Review Network and System Architecture: evaluating the infrastructure and cloud for vulnerabilities, outdated systems, and insecure configurations.
· Data Handling Practices: assessing data classification, encryption, and loss prevention measures.
· Regulatory Compliance: analysing adherence to relevant data privacy and security regulations.
· Red Teaming: conducting fullend-to-end Red Teaming and penetration testing to uncover exploitable weaknesses.
· Third-Party Risk Assessment: evaluating the security practices of vendors and suppliers associated with the target company.
Assessing the cybersecurity maturity levels of both the acquiring and the acquiree organisations helps identify gaps and areas for improvement. This understanding is vital for developing a roadmap to align both organisations' security postures and ensure smooth integration.
Creating a detailed plan to synchronise both organisations' cybersecurity risks and maturity levels is crucial for a successful merger. This plan should include steps to address identified gaps, implement necessary controls, and ensure that both organisations are aligned in their approach to cybersecurity.
In addition to integrating the two organisation’s vulnerability remediation measures, they need to integrate their cybersecurity systems, including all information security policies and procedures. This must include updated incident response plans, with clear instructions regarding stakeholders, roles, and responsibilities that staff can refer to during a cyber incident such as a data breach.
We help develop a plan to integrate security controls, policies, and procedures while minimising disruption and risk.
Through our findings in the DD phase, we will create a roadmap to address identified vulnerabilities and security gaps based on the pre-merger assessments.
As the two organisations align and settle into the post-acquisition phase, it’s essential to continue monitoring information security. As during the main part of the acquisition process, monitoring should be around the clock. The acquiring Chief Information Security Officer(CISO) or similar position must ensure that the target firm’s cybersecurity meets the buying firm’s requirements for confidentiality and integrity, following the same policies and procedures.
· Timing is Key: Throughout the process, it is essential to maintain strict timelines to address the issues discovered. A realistic timeline for what can be addressed immediately, in the first three, six, and twelve months up to both organisations' integration, should be mapped.
· Cost Considerations: Factor in the potential cost of remediating security issues identified during the assessments.
· Seek our Help: Consider engaging our team to assist in M&A transactions for guidance and support.
According to EY, cybersecurity due diligence in M&A is crucial as it helps identify vulnerabilities that potential hackers could exploit, quantify cyber risks, and manage the mitigation or remediation of these risks. Ignoring cybersecurity risks in M&A can expose a buyer to a range of risks, including diminished revenues, profits, market value, market share, and brand reputation.
CrowdStrike highlights that cybersecurity is often overlooked during the M&A process, but it plays acritical role in due diligence, pre-close, and post-close phases. They highlight the importance of understanding a data breach's potential risks to critical business assets and functions, from intellectual property and operations to customer information and credit card data.
The M&A Community also stresses that cyber risk assessment can impact the valuation and negotiation process, and cybersecurity risks intersect with other M&A risks. They recommend conducting a thorough cybersecurity review to ensure a secure foundation for the merging companies.
In the fast-paced world of mergers and acquisitions (M&A), robust cybersecurity is essential. A thorough cybersecurity assessment safeguards valuable data, protects reputations, ensures compliance, and lays the groundwork for a secure future.
While companies assess their targets’ operational and financial situations, they must also thoroughly assess target firms’ security postures. Realising that a firm has significant vulnerabilities needs to happen before a takeover, not after. Moreover, a firm’s cyber threat level increases as soon as word goes out that a merger is being discussed, so cybersecurity must be a critical factor throughout the entire merger and acquisition process.
By following a comprehensive cybersecurity assessment process, merging companies can create a secure foundation for their future together, mitigating risks, protecting assets, and building trust with stakeholders.
