The Importance of Cybersecurity M&A Due Diligence
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2024年5月23日
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Traditional due diligence programs account for financial, commercial and operational inquiries. Keeping pace in today’s digital age, however, requires that investors go beyond the scope of conventional diligence and ensure that risks posed by cybersecurity issues are adequately considered and actioned appropriately.
Cybersecurity Due Diligence and Its Objectives
Traditional due diligence paints an incomplete picture and leaves investors unable to adequately assess the effectiveness and efficiency of the target’s cybersecurity operations and associated controls. In fact, because cybersecurity issues, vulnerabilities and risks are inherited by the acquiring party, obtaining this information early during the diligence stage is critical.
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Cybersecurity-focused due diligence in an M&A context enables buyers to comprehensively grasp the cyber-induced risk profile of the target business and determine the resources required for the risks to be remediated. In light of the constantly evolving cybersecurity threat landscape, ever-heightening third-party risk, and increasingly stringent regulatory mandates regarding the handling of sensitive information, investors cannot afford to ignore the intelligence that cybersecurity due diligence yields.
Pre-deal Considerations
Prior to the confirmation of a transaction, cybersecurity due diligence provides a range of insights into cybersecurity-related opportunities, strategies, and strengths and weaknesses. In addition, an expertly delivered view on a target’s cybersecurity posture and its potential to scale securely can directly impact deal value and viability. The assessment of high-impact risk areas such as breach preparedness, incident response capabilities and data security management may influence investors to take steps to remediate any issues discovered and proceed with the deal or walk away from the transaction if both the price and risk are too high.
Pre-deal cybersecurity due diligence can take many forms. In addition to questionnaires, interviews, and policy inspections, activities such as external exposure assessments — also known as digital footprinting — can provide investors with real-time insights into the cybersecurity management capabilities of their potential acquisition. These assessments identify IT assets and services that are publicly exposed and potentially exploitable, and allow for vulnerabilities to be secured and risks mitigated prior to a deal closing. In combination with dark web intelligence assessments designed to identify sensitive leaked data, malicious threat actor chatter and stolen credentials available online, these assessments are powerful pieces of insight that investors can use to evaluate the risks associated with a potential transaction.
Integration Considerations
During integration, efforts should be focused on determining how to manage the merging of systems, networks, tools and processes. Remaining vigilant throughout this phase of the deal lifecycle is vital. M&A announcements can draw threat actor attention, leading to exploit attempts on the target company’s network to gain access to the acquiring company’s systems and compromise them. Threats of this nature include ransomware and business email compromise (“BEC”)-style cyber attacks that either restrict access to integral information or attempt to extort funds through fraudulent requests that appear to come from trusted sources.
Remediating vulnerabilities in advance of the deal and during the integration process can limit the ability of threat actors to take advantage of distracted security staff or constrained resources — issues which often present themselves during M&A deals. Risks associated with these issues can be further mitigated by focusing on employees and the role they play in keeping the organization safe. It is possible that new staff will be onboarded during integration, so providing them with cybersecurity awareness training and setting security-related expectations is critical, especially since ransomware and BEC attacks often rely on an individual unwittingly clicking on a malicious link or downloading a malware-laden attachment.
Conclusion
Going beyond the scope of traditional M&A due diligence and ensuring that cybersecurity is a priority item is necessary to mitigate financial, reputational and regulatory risks — all of which, in turn, reduce the overall risk associated with a transaction. Despite often being viewed as an obstacle on the path to closing, proper due diligence is enormously beneficial to parties on both sides of the deal. By identifying and mitigating risks in advance, the acquiring company gains assurance around the value of their investment, while the acquired company is given the opportunity to remediate vulnerabilities identified throughout the process — safeguarding their valuation and remaining an attractive investment prospect.
Even after the M&A deal closes, the work is never done. Just as threat actors are constantly evolving their tactics, techniques and procedures to bypass technical network, data and system protections, investors must continually assess the cybersecurity posture of their investments to ensure that they are keeping pace with new threats and regulations. By proactively managing cybersecurity across the deal lifecycle and beyond, acquiring parties can ensure the protection of their investments and increase the digital resilience of their portfolios.
出版
2024年5月23日