Why is Cyber Security in Mergers and Acquisitions Important? 4 Crucial Reasons Explained

01 February 2024
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Companies that want to combine forces have been happening for a long time. Yet, the stakes have never been higher for M&A security. Cyber security, in particular, cybercrime, is going to become one of the biggest risk factors for the M&A process. And you need to know the how's the why's.
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So what's the bottom line?

M&A can bring many benefits. Enhanced market share, expanded product portfolios, and operational synergies all being important reasons. But it also introduces a distinct set of challenges. Particularly in the realm of cyber security.

There are four main factors to consider with mergers and acquisitions cyber security:

  • Data breaches and unauthorised access
  • Integration challenges
  • Vendor and third-party risks
  • Loss of focus on cyber security.
How to handle each of these is vital to know. But first:

Why Cyber Security Matters in Mergers and Acquisitions

In an era defined by digitalisation, data is a valuable currency in the business world.

As companies consider combining forces, the exchange of data and information becomes an integral part of the process. This data exchange includes sensitive financial records, customer information, intellectual property, proprietary software, and more.

Ensuring the security and integrity of this data is crucial. That is if you want to maintain trust, preserve competitive advantage. And of course, avoid potential legal and financial liabilities.

The Biggest Risks in Cyber Security During Mergers and Acquisitions

Here are the areas of cyber security that matter concerning M&A.

Data Breaches and Unauthorised Access

During M&A transactions, companies often share vast amounts of sensitive information. This information exchange creates an opportunity for cybercriminals. They can exploit vulnerabilities and gain unauthorised access to valuable data. If not protected, compromising customer data, trade secrets, and financial records could leak.

For example: In 2017, Verizon's acquisition of Yahoo encountered two massive data breaches. Yahoo suffered a breach in 2013 but failed to disclose it until 2016. This delayed disclosure raised concerns about Yahoo's data security practices. Which had a direct impact on the deal's final price.

Integration Challenges

Merging two distinct IT infrastructures can be complex. It often involves integrating various hardware, software, and networks.

Misconfigured integrations can create security gaps that hackers can exploit. Furthermore, different cybersecurity cultures and practices in merging organisations can clash. Thus making it difficult to establish a unified and strong security posture.

Vendor and Third-Party Risks

M&A transactions often involve third-party vendors who provide services to the companies involved. These vendors might not adhere to the same level of security standards. This can introduce vulnerabilities into the consolidated business. Without a thorough assessment of these vendors' security practices, the risk of a breach increases.

For example, the 2013 data breach at Target is a cautionary tale of third-party risk. The breach occurred through a heating and cooling vendor's compromised credentials and gained access to Target's payment system. Which led to the exposure of credit card information for millions of customers.

Loss of Focus on CyberSecurity

Sometimes, the things that don't seem important are never actioned or forgotten about.

Here's the deal:

Amid the flurry of activities during a merger or acquisition, cyber security considerations can take a back seat. Resources and attention may go towards other challenges, leaving critical security measures neglected.

This distraction can be an easy thing for cybercriminals to exploit.

Best Practices for Mitigating Cyber Security Risks in Mergers and Acquisitions

Now we know the major issues facing M&A from a digital point of view, it's time to take those steps to prevent it from happening.

Early Due Diligence

Conducting comprehensive cyber security due diligence is one way to prevent cybercrime. This means assessing the cyber security practices, vulnerabilities, and incident history of the target company. Identifying weaknesses early allows for the development of a risk mitigation strategy.

Establish Cyber Security Teams


Forming dedicated cyber security teams composed of experts from both merging entities can help. These teams should work together to check and address potential risks. They can develop integration plans, and ensure that security practices are consistent across the new organisation.

Security-Focused Integration Planning

Integrating IT systems and networks that have a strong focus on security. This includes:

  • Reviewing and enhancing the security architecture
  • Ensuring consistent security policies
  • Conducting thorough testing to identify and rectify vulnerabilities.

Third-Party Risk Assessment

Checking over the cyber security practices of third-party vendors involved in the M&A process is often an overlooked step. This assessment should extend beyond the immediate integration phase. This ensures that vendors align with the new security standards.

Continuous Monitoring and Training

Install continuous monitoring mechanisms to identify any irregularities or potential breaches.

But also provide cyber security training to all employees. This helps raise awareness about best practices and potential threats.

What Else Affects the M&A Process?

As businesses navigate the world of mergers and acquisitions, cyber security becomes a no-brainer. The digital age has redefined the value of information. Making it critical to protect sensitive data. Especially when two companies are coming together.

By recognising the risks, implementing best practices, and fostering a security-centric approach, organisations can safeguard their digital assets and protect their reputation. And most important of all, ensure a smooth and secure transition into their new business phase.

With data breaches and cyber attacks on the rise, cyber security in mergers and acquisitions is not an option—it's a necessity for sustained success.

For more in-depth strategy and knowledge on the topic, Be sure to check out our selection of mergers and acquisitions courses led by expert trainers.

FAQ

What are the Top 3 Targeted Industries for Cyber Security?

The top three industries that focus on cybersecurity are finance (banks and online transactions), healthcare (patient data protection), and technology (securing software and networks). These industries aim to prevent hacking, data breaches, and cyberattacks to keep sensitive information safe.

What are the 3 P's of Cyber Security?

The 3 p’s of cyber security are patches, phishing and passwords. All play an intricate role in the long-term security of a business.
Eager to learn more about the issues in M&A and how to overcome them? Click below to find out more about Redcliffe Training’s Mergers & Acquisitions Courses:

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