The Importance of Cyber Security in Mergers and Acquisitions (M&A)
The cyber security M&A landscape
The cyber security industry remains fast-moving and continually subject to change in terms of products, services and market approaches. A National Cyber Strategy has been implemented by the UK government, spelling out measures to ensure the nation will continue to flourish as a leading, responsible and democratic cyber power.
Why is cyber security in M&A necessary?
To heighten confidence in negotiations – Confidentiality is an essential part of a business sale, and cyber security in mergers and acquisitions provides important protection in ensuring important data or information during the negotiation process cannot be obtained by anyone you would not to access it.
To enable effective planning – As you become immersed in the sale of your business, assessing the cyber security M&A challenges and acting upon them ensures you can build and execute robust and cost-effective plans that are aligned with your wider objectives.
To protect your investment – Ticking all the right boxes when it comes to mergers and acquisitions cyber security will give you the best opportunity to optimise your expenditure on this essential asset and increase the chance of your value creation plans being realised.
To maximise your company’s sale value – If you get your mergers and acquisitions cyber security right, it will issue a positive message to a buyer about the level at which your business operates – boosting the potential to achieve the highest possible value and within a suitable timeframe.
Top 5 risks of cyber security in mergers and acquisitions
Among the key data that must be protected within M&A cyber security are financial details of the company and information about employees, customers and suppliers. Any breaches would not only jeopardise a business sale and the prosperity of the company itself, but also potentially transgress data protection laws.
Undetected malware, access management issues and Internet of Things (IoT) devices contribute to cyber security vulnerabilities. Effective vigilance and mechanisms for mitigating such threats must be implemented to reduce both the attack surface and the potential risks of confidential data theft, business disruption and intellectual property sabotage.
Overburdened IT resources present risks in terms of increasing the potential for cyber-attacks. Cyber criminals could exploit this vulnerability through techniques such as phishing, ransomware or distributed denial-of-service attacks. These can be mitigated by instigating an M&A cyber security due diligence assessment that can help to identify any security risks and liabilities.
Disruption to the organisation
Changes in roles, responsibilities and operational practices can lead to dissatisfaction among employees and potential job losses. Maintaining stable and robust information systems and cyber security controls during the M&A process and period of change can ensure a smoother integration for the acquiring company.
Disruption to technology
Technological integration and the upgrading of systems can introduce cyber risks such as incompatibility and scaling issues, or the detection of unusual activity.
By way of example, the Marriott Hotels chain was fined £18.4million by the UK’s data privacy watchdog for a major data breach that could have affected up to 339 million guests worldwide during its acquisition of the Starwood Hotels group.
How to mitigate risks to cyber security in M&A?
Before the M&A process
Conducting mergers and acquisitions cyber security due diligence should be considered a vital process by a prospective business buyer in assessing the target company’s security controls, cyber security culture, legal compliance and the associated potential risks.
The purpose of the detailed risk assessment is to provide information about the potential impact of risks and vulnerabilities and how they might be mitigated, while passive threat hunting and data leak searches can be conducted to limit or negate the impact of any malign activity.
It is crucial for an acquirer to identify any gaps in the target company’s security controls, evaluate its data protection capabilities, rate the level of cyber risk and compile a remediation plan.
External auditors and cyber security teams which specialise in M&A transactions can deploy endpoint protection, continuous monitoring of systems and real-time threat detection.
After M&A completion
Following the mergers and acquisitions cyber security best practices outlined above will put the business in an advantageous position, but that does not mean the foot should be removed from the pedal after the transaction has gone through.
Continuous monitoring of systems, vulnerability remediation, cyber security systems integration and incident response plans in the post-acquisition phase will all contribute towards ensuring the business remains as technologically secure as it can be.
Expert management of cyber security in mergers and acquisitions
Companies across all industries have had to invest in cyber security enhancements connected to the growth of hybrid, remote and agile working, especially since the Covid-19 pandemic at the start of the 2020s.
Businesses providing cyber security services have been in strong demand for M&A activity and we have overseen a number of transactions within the sector, including the sale of Mitigate Cyber to Citation Group, IASME Consortium to Phenna Group and Tellemachus Ltd to Bedroq.
If you are considering selling your business and have any concerns about cyber security in mergers and acquisitions, feel free to contact us on 0161 258 0118 for a confidential discussion.