In the era of digital interconnectivity and mounting cybersecurity threats, due diligence during a merger or acquisition (M&A) process must incorporate a comprehensive assessment of the target company’s cyber risk profile. Thorough due diligence can uncover potential cyber vulnerabilities, allowing involved parties to make informed decisions, protect their investment, and mitigate risks.
An effective cybersecurity due diligence process involves asking pertinent questions to identify vulnerabilities, evaluate the existing cybersecurity policies, and develop a robust risk mitigation strategy.
Listed below are key Due Diligence Questions for M&A that should be addressed.
Understanding existing cybersecurity infrastructure
- What cybersecurity programs and policies does the target company have in place?
- How are these cybersecurity measures overseen and audited?
- How well equipped is the target entity to detect, respond to, and recover from a cyber-attack?
These questions address the fundamental cybersecurity assessment depth of the target company. Their responses will provide an overview of how the organization treats and manages cyber threats.
Identifying past incidents and responses
- Has the target company encountered any cybersecurity incidents in the past?
- How were these incidents managed, what was their impact, and what actions were taken post-incident?
Historical events often foretell future incidences. Understanding how the company responded to past breaches helps evaluate its preparedness level. It could also reveal potential red flags if past incidents were not adequately addressed.
Compliance with cybersecurity regulations and standards
- Does the entity comply with relevant industry cybersecurity standards like ISO 27001, NIST Cybersecurity Framework, or GDPR?
- Has the company ever failed in any cybersecurity compliance audit?
Given the complex regulatory landscape, determining compliance levels is critical. Non-compliance could result in penalties and even undermine the company’s reputation.
Evaluating third-party and vendor risks
- What level of access do third-party services and vendors have to the company’s systems?
- What measures are in place to manage third-party cybersecurity risks?
Companies often fail to assess the cybersecurity risk imposed by third-party vendors. Ensuring the company maintains stringent cybersecurity screening measures for its external partners is crucial.
Understanding cybersecurity cost implications
- What are the financial implications of potential cybersecurity breaches?
- What budget is allocated for implementing, maintaining, and improving cybersecurity measures?
Inadequate budget allocation towards cybersecurity may indicate a lack of understanding and commitment to mitigating cyber threats.
Employee Awareness and Training
- What level of cybersecurity awareness and training does the workforce have?
- How often is cybersecurity training carried out?
Employees are often the weakest link in cybersecurity and should be adequately trained in cyber threat detection and response.
Understanding the depth of these questions will aid in a comprehensive review of potential cyber risks in M&A due diligence. Identifying key issues early ensures the acquiring company can avoid inheriting unforeseen cybersecurity liabilities and vulnerabilities. The insights gleaned can shape the M&A negotiation strategy, price evaluations, and even influence the decision to proceed with the transaction.
Cybersecurity due diligence in M&A is critical. Companies need to proactively understand the risk landscape, ask the right questions, and take appropriate mitigation measures. This will safeguard the deal’s value and reduce the likelihood of unpleasant surprises post-acquisition.