In mergers and acquisitions (M&A) negotiations, the acquiring organisation must look closely at a series of factors such as a company’s balance sheet, intellectual property and market share. How well a company performs in each of these areas can make or break a deal, but what some organisations may not realize is that another factor has become just as important in M&A activities – an organisation’s cybersecurity posture. Ignoring cybersecurity in M&As can leave an organisation exposed to a range of risks, including diminished revenues, profits, market value, market share and brand reputation.
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In a recent survey by Forescout, 53% percent of respondents stated that their organisations encountered critical cybersecurity issues during the M&A process, which jeopardised the deal negotiation.
Here are 5 tips to address and manage cyber risk during an M&A:
Engage early in the transaction
Build a view of cyber risks and costs from the deal outset. Vulnerabilities must be found in advance to reduce the attack surface before they can harm the acquiring company.
Quantify the liability
Understanding your deal-specific financial exposure is critical. The acquiring company should conduct a questionnaire survey and penetration testing to understand the target company’s risks and issues.
Factor into negotiation
Seek to offset risk through deal terms and valuation. The acquiring company must determine the cybersecurity posture of the target company to mitigate the risk of a data breach.
Mitigate the liability
Remediate critical cyber activities pre-closing or during first 100 days. Keep in mind that risk exposure can be high during the transition phase for both the organisations involved due to the possible open networks that support integration activities.
Transfer the liability
Place latent liability into the insurance market such as Warranty & Indemnity or specific Cyber insurance.