Explanation
Merger and acquisition (M&A) activity is making a long-awaited comeback, surging 130% in the U.S. to $288 billion. According to him, M&A worldwide increased by 56% to $453 billion. Data from Dealogic.
When two companies merge, vast amounts of sensitive data and information are exchanged between them, including financial records, customer information, and intellectual property. Additionally, different types of software and hardware often need to be integrated, which can create security vulnerabilities that cybercriminals can exploit.
Cybersecurity is critical to protecting the integrity of sensitive data and can make or break an M&A transaction. I have worked in a variety of industries, from banking and finance to healthcare, technology, and government. Cybersecurity challenges associated with managing M&A. Each M&A transaction I have been involved in has been far more complex than originally anticipated and has taken longer to complete than expected. This is especially true when it comes to technology stack integration.
Understanding cybersecurity in M&A
Merging with or acquiring companies with poor cybersecurity posture makes it much easier for cybercriminals to launch attacks. Data breaches not only have significant financial consequences, such as legal costs and financial penalties, but they can also severely damage an organization's reputation.
If organizations fail to effectively prevent and mitigate cyber risks, they can lose the trust of customers, partners, and investors, and jeopardize business transactions. Cybersecurity therefore needs to be a key consideration from the start of the M&A lifecycle, rather than later. Regulators are also increasing their scrutiny of M&A transactions, imposing hefty fines for violations. In many states and countries, regulations such as the European Union's General Data Protection Regulation (GDPR) protect personal data when it is transferred between entities.
M&A Cybersecurity Checklist
Leveraging over 25 years of experience in risk, governance, and cybersecurity, we have created the following checklist to help organizations protect their digital assets before, during, and after a merger/acquisition.
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Conduct due diligence early. Both organizations should work together to assess the target company's current cybersecurity practices, internal IT infrastructure, and incident history to identify weaknesses and security vulnerabilities. You may want to bring in an external auditor or cybersecurity expert who specializes in M&A transactions.
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Adopt risk indicators. Before creating a plan, both companies must agree on the acceptable level of risk and how this risk will be measured. Standardized risk metrics ensure that risks are within agreed levels and facilitate communication and collaboration at all levels of leadership in the new organization.
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Establish a cybersecurity team. We will create a dedicated team of experts from both organizations to work together to address and manage potential cyber risks. This ensures that security practices are consistent across the new organization.
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Develop a risk mitigation strategy. Based on an initial assessment, cybersecurity teams can determine what steps, processes, and technologies need to be implemented to strengthen the target company's cybersecurity posture before the organizations merge. The plan should also clearly outline corporate policies and roles and responsibilities across both organizations for managing cybersecurity.
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Plan your IT integration. Security measures are essential when integrating IT systems and networks. This includes reviewing and hardening the current security architecture, implementing security policies, and testing for security vulnerabilities. You may need to implement new tools and technologies to protect your data during the integration process.
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Review third-party risks. If external vendors are involved in the M&A process, ask them for details about their processes for managing and monitoring cybersecurity risks. The assessment should ensure that the vendor's practices are consistent with the target company's cybersecurity standards.
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Establish identity and access governance and management. Implement strong controls to ensure only authorized people have access to sensitive information, digital assets, data, and systems, with different access levels based on roles and responsibilities. This helps prevent or minimize hacking, fraud, internal data breaches, and human error.
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Create an incident response plan. In the event of a data breach, organizations need to have a plan in place to minimize disruption to their business. To ensure continued access to your data, it is essential to back up your critical databases and store them off-network. Your incident response plan should be printed or distributed among your staff so everyone knows what to do in the event of a cyberattack.
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Ensure continuous monitoring. Cybersecurity doesn't end when a deal is completed, and the post-M&A period can be a particularly vulnerable time for companies, so it's essential to be vigilant. Therefore, organizations need mechanisms to continuously monitor their systems and networks 24/7 and detect real-time threats to identify security vulnerabilities and potential breaches.
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Train your employees. Ensure that all employees of both entities involved in the merger or acquisition receive comprehensive and regular training on cybersecurity best practices. It is important to communicate that each person can play a role by being aware of threats and reporting them promptly. Consider conducting cybersecurity training to prepare your staff for what a cyberattack might look like.
