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Managing Cybersecurity Risk During Mergers & Acquisitions

M&A Cybersecurity

When it comes to cybersecurity risk, mergers and acquisitions simultaneously present challenges and opportunities. Organizations typically seek to acquire a target in order to augment their capabilities, expand their market reach or reduce competition. But if the acquirer doesn’t assess the financial, operational, or reputational risks involved carefully enough, stakeholders may ultimately discover that the business benefits carry lingering cybersecurity headaches that require remediation, possibly cutting into the ROI on the transaction.

Or, if news of a recent breach breaks before the deal is finalized, liability exposure can lead to a significant reduction in the target’s valuation. This famously took place during Verizon’s acquisition of Yahoo in 2017. After Yahoo disclosed that it had been the victim of two massive data breaches – during which more than one billion of its customers’ accounts had been compromised – Verizon changed the terms of sale, paying $350 million less than originally planned.

Identifying and accounting for technology- and security-related risks during the fast-paced negotiation phase can be challenging. Timelines are often accelerated, access to cyber information may be limited and due diligence usually doesn’t include a thorough cyber risk assessment. But accurately surfacing risks is critical for maximizing the value of your investment, as well as ensuring that integration goes smoothly.

In M&A, risk assessment is essential, but it’s also important to conduct that risk assessment efficiently and to do so with the aim of identifying the vulnerabilities that pose the greatest and most immediate risk. This way you start with the things that need immediate attention and save lower-priority items for after the integration. This strategy will help you meet expectations and achieve faster ROI.

Pre-integration steps

We recommend that all organizations follow a cybersecurity framework to ensure that they’ve covered the fundamentals needed to maintain a strong cybersecurity posture. The period surrounding a merger or divestiture isn’t any different. Because the M&A lifecycle is typically a busy time, with many action items to complete, it’s especially important to have a clear security and risk management roadmap to follow.

Still, you won’t be able to evaluate everything at once. Take the framework of your choice (such as the NIST CSF, ISO 27002, or the top CIS controls) and edit it down to the elements that are most relevant to the transaction at hand. What matters most will depend upon your business objectives, your industry and the specific operational risks that you and the target organization face. You should look at these risks through the same lens that you’d apply to your own business, and then break up the control set questionnaire into must-haves and nice-to-have items.

The list of must-haves should include all the deficiencies that need to be remediated before you merge your networks or introduce the reputational risks that come with shared branding. A few examples of things that warrant immediate attention include:

  • Lack of antivirus, antimalware or endpoint detection and response (EDR) software on employee devices
  • Lack of multi-factor authentication (MFA) for remote access, privileged accounts, or critical corporate IT resources
  • An ineffective vulnerability management and patching program

It’s likely that your assessment will also yield a longer list of to-dos that need to be completed, but not right away.

The key to successful integration: common standards

Security loves consistency. By taking the same approach across the entirety of your newly merged business, you’ll enjoy the benefits of consistency and standardization; including predictability and repeatable processes. These include efficiency and reduced risk.

M&As are usually a time of far-reaching change. This transition provides both entities with the opportunity to assess the people, processes, and technologies they have in place, with the goal of optimizing resource usage while driving down costs and reducing risk. To achieve this, define the go-forward model for security. Leverage existing programs that are mature and effective. and migrate outlying processes onto the new corporate standard.

Establishing standard governance across the entire organization requires asking questions like:

  • How well-established and documented are our processes?
  • Are our employees – in both technical and non-technical roles – trained in cybersecurity best practices?
  • Do our systems and processes stand up to audits and testing?
  • Are our standards applied to all of the company’s systems consistently?
  • Is there a monitoring mechanism in place that will give an early warning if our processes begin to deteriorate?

A word of warning: although assessment is important, so too is forward momentum. Don’t stay in a state of limbo or uncertainty for too long. Instead, come up with a design that seems like it will work, implement it, and refine it over time as you learn more about its strengths and weaknesses in the real world. M&A integrations can be difficult. You need to be risk-driven and aligned but also decisive so that you can emerge from the process stronger than you were when you started. Done well, the M&A process has the potential to advance the cybersecurity maturity of both organizations involved.

Want to learn more about how BTB Security can help you understand the risks associated with M&As? Contact us to learn more about our CISO Advisory Services, or schedule a free consultation to learn more about cybersecurity strategy for M&As today.

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