Compliance The Importance of Cybersecurity in Mergers and Acquisitions

As the pace of mergers and acquisition-related activity accelerates, so does the complexity of integrating diverse cybersecurity-related systems, processes, and cultures.

Once companies merge, they not only acquire new assets and market opportunities; they also inherit the cybersecurity vulnerabilities and risks of the entities they bring into their fold. Once an M&A transaction is completed, the focus shifts to post-merger integration (PMI), where cybersecurity remains a vital area of concern. The integration of systems, networks, cultures, and teams must be handled with careful planning to mitigate potential cybersecurity risks and ensure long-term success.

Today, we examine the essential role of cybersecurity in M&As, highlighting the challenges, best practices, and the evolving role of Chief Information Security Officers in navigating these risks.

Unified Security Policies and Standards for Mergers and Acquisitions

After the merger or acquisition, the newly formed entity must unify its cybersecurity policies and practices. Differences in cybersecurity cultures and policies between the merging organizations can create gaps or inconsistencies, which may lead to vulnerabilities.

To ensure a smooth integration, the following steps should be taken:

• Align security protocols across both organizations, ensuring that best practices are followed and that there is consistency in how data is managed and protected.

• Develop and enforce unified access controls, network security measures, and monitoring processes.

• Set clear roles and responsibilities for cybersecurity governance, ensuring accountability within the combined entity.

Risk Assessments and Threat Mitigation Post-Merger

Even after a successful M&A transaction, cyber-related risks continue to evolve as the integration progresses. This requires continuous monitoring and periodic reassessment of cybersecurity risks.

Key steps in mitigating post-merger risks include, but are not limited to:

• Performing a comprehensive risk assessment of the combined IT infrastructure, identifying any new vulnerabilities that arise from the integration of systems and data.

• Reviewing and updating disaster recovery and business continuity plans to accommodate the newly merged structure.

• Conducting a post-merger cybersecurity audit to assess any gaps or weaknesses that might have been overlooked during initial due diligence.

Employee Training and Awareness

During an M&A, employees of both organizations may have different levels of understanding and commitment to cybersecurity practices. To ensure that all employees adhere to the new cybersecurity policies, it is essential to:

• Provide regular and comprehensive cybersecurity training that includes awareness of new policies, protocols, and potential threats.

• Foster a culture of cybersecurity awareness and responsibility across the organization, ensuring that all employees, regardless of their role, understand the importance of protecting sensitive data and systems.

• Implement a robust onboarding process for employees to quickly align them with the company’s cybersecurity practices post-merger.

Third-Party and Vendor Security Management

Post-merger integration often involves revisiting third-party relationships, including suppliers, service providers, and business partners. These external parties could pose cybersecurity risks, especially if their systems are interconnected with the newly merged organization.

To safeguard against third-party risks, organizations should:

• Conduct due diligence on all vendors and third parties to assess their cybersecurity practices, policies, and compliance with data protection regulations.

• Establish and enforce robust security standards for third-party relationships, including contractual clauses requiring vendors to meet specific cybersecurity requirements.

• Regularly monitor third-party cybersecurity risks and vulnerabilities to ensure that any changes to their systems or practices do not pose a threat to the merged organization.

Data Migration and Integration Security

M&A transactions often involve the migration and integration of large volumes of sensitive data across different systems. This can create substantial cybersecurity risks if proper precautions are not taken.

Best practices for securing data during the integration process are as follows:

• Ensuring that all data migrations are conducted using secure encryption methods to protect the data in transit.

• Limiting access to sensitive data during the migration process, with strict access controls and authentication protocols.

• Verifying that the new systems or platforms are properly secured and meet the necessary compliance and security standards before transferring data.

Cybersecurity Incident Response and Crisis Management

Despite preventive measures, cybersecurity incidents may still occur during or after an M&A. The combined organization must have a strong incident response and crisis management plan in place to quickly detect, respond to, and mitigate the effects of any security breaches.

Effective incident response strategies include:

• Developing and regularly testing a joint incident response plan that accounts for the complexities of the newly merged organization.

• Establishing clear communication channels for reporting security incidents and coordinating responses across the cybersecurity, legal, and communication teams.

• Ensuring that the response plan includes provisions for external stakeholders, including customers, regulators, and investors, in case a breach or security incident affects them.

Ongoing Monitoring and Threat Intelligence

Once the merger or acquisition is complete, the combined organization must continuously monitor its cybersecurity environment. Cyber threats evolve rapidly, and the organization must remain vigilant in identifying and responding to emerging risks. To ensure ongoing security, organizations should:

• Implement advanced security monitoring tools, including network intrusion detection systems (NIDS) and endpoint detection and response (EDR) tools, to detect and respond to threats in real time.

• Stay up-to-date with the latest threat intelligence, sharing relevant insights with internal teams and adjusting cybersecurity practices as necessary.

• Collaborate with industry groups and partners to stay informed of evolving threats and trends in the cybersecurity landscape.

Future-Proofing Cybersecurity in M&A

Looking ahead, the integration of cybersecurity considerations into M&A strategies will become even more critical as the threat landscape continues to evolve.

The following forward-looking considerations will help organizations future-proof their cybersecurity posture in M&A transactions:

1. Adoption of Emerging Technologies

As emerging technologies, such as artificial intelligence (AI), machine learning (ML), and blockchain, become more prevalent in business operations, they will also be integrated into M&A processes. These technologies have the potential to enhance security measures, improve threat detection, and automate response actions.

However, they also introduce new risks. Organizations must assess the cybersecurity implications of incorporating emerging technologies into their systems and operations during an M&A.

2. Cybersecurity as a Strategic M&A Factor

Cybersecurity will increasingly be viewed as a critical component of the M&A strategy. Future M&A deals may place even greater emphasis on the cybersecurity health of both the acquiring and target companies.

Companies should assess cybersecurity maturity as a key determinant in the decision-making process, ensuring that the target company’s cybersecurity posture aligns with the strategic objectives of the merger or acquisition.

3. Cybersecurity-Driven Cultural Integration

As organizations integrate culturally during an M&A, cybersecurity will need to become an integral part of the organizational culture. This requires fostering an environment where cybersecurity is treated as a shared responsibility across all departments and levels of the organization.

Establishing cybersecurity as a core value will help prevent security lapses and promote a unified security-conscious culture.

4. Regulatory Evolution and Cybersecurity Standards

The regulatory landscape surrounding cybersecurity continues to evolve, with increasing pressure on organizations to protect sensitive data and systems. Governments are likely to introduce more stringent regulations and penalties for non-compliance in the coming years.

As part of M&A transactions, companies will need to navigate these regulatory changes and ensure that the new, combined entity remains compliant with all relevant cybersecurity laws and regulations.

Conclusion

Cybersecurity threats to M&A transactions are significant and can have a lasting impact on the success of the deal. However, by implementing a comprehensive cybersecurity strategy that includes careful due diligence, robust integration planning, continuous monitoring, and an organization-wide commitment to security, businesses can mitigate these risks and ensure the long-term success of their merger or acquisition.

Cybersecurity is no longer just a technical consideration but a strategic imperative in M&A. The organizations that prioritize cybersecurity throughout the M&A process, from initial planning through integration, will be better positioned to navigate the complexities of modern mergers and acquisitions and safeguard their assets, reputation, and business continuity.

By proactively addressing cybersecurity threats and aligning security practices across all stages of the M&A lifecycle, businesses can unlock the full potential of their mergers and acquisitions while protecting themselves from evolving cyber threats in an increasingly interconnected world.