Buying a risky or vulnerable company is avoidable, and what you don't know can hurt you. Even with insurance or financial indemnification, cybersecurity breaches represent significant capital investment and brand risk. Cyber-related compliance requirements are often poorly understood, difficult to detect, introduce reputational risk, and cost time lost with outside auditors.
ProCircular's cybersecurity due diligence services assist both buy and sell-side firms in quantifying and addressing these cybersecurity risks of mergers and acquisitions. ProCircular will perform a cyber resilience assessment against national standards and summarize a company's relative strengths and weaknesses.
What is cybersecurity due diligence in mergers & acquisitions?
Cybersecurity due diligence uses technical and governance-related assessments to determine the risk level associated with combining separate entities. Without due diligence in mergers and acquisitions, both organizations could unknowingly take on critical vulnerabilities.
Top 4 risks discovered during cybersecurity due diligence in mergers & acquisitions
1. External or Internal Information Security Vulnerabilities
A vulnerability is a gap or opportunity that a hacker can use to gain entry to a private network. External vulnerabilities are weaknesses in internet-facing aspects of the network, and internal vulnerabilities are the gaps in the internal network that a company resource or unauthorized visitor would be able to exploit. These can look like weak password policies, misattributed READ/WRITE permissions, or lack of preparation for a security incident. When these integration risks in mergers and acquisitions are discovered on either side, they need to be remediated or acknowledged and accepted by both parties. Left unmediated, these gaps can attract and invite malicious actors into the network to cause further damage or lurk for more profitable opportunities.
During an external and internal vulnerability assessment, security engineers use automated scanning tools to look for both types of vulnerabilities the same way the bad guys do. Identified external vulnerabilities are then manually hacked to determine if they can be exploited. If applicable, ProCircular will also perform an Application Analysis (Smoke Test) to check for insecurities in acquired websites or online applications. Due diligence in mergers and acquisitions is key to understanding network security risks for both parties. Finding and closing vulnerabilities before merging or acquiring companies will clean up some of the “low-hanging fruit” that attract cybercriminals.
Cybersecurity Due Diligence Tactics:
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- Cybersecurity Program Maturity Review
- External Vulnerability Exploitation
- External & Internal Vulnerability Assessment
- Application Analysis (Smoke Test)
2. Underdeveloped or Lack of Cybersecurity Infrastructure & Documentation
Good processes lead to good outcomes. That is why most risk frameworks, like the one used for the Cybersecurity Maturity Model Certification (CMMC), acknowledge that lack of evidence of a mature organization is a strong indicator that security processes are not being followed. A formal document review should unveil an entire suite of documentation, such as change and configuration management, business continuity plans, incident response tabletop attestations, and hardening guides for endpoints and servers. This analysis will ensure the proper cybersecurity foundation is in place.
Although the existence of a written policy and procedure does not itself reduce risk, if the organization has a history of following those procedures, the evidence trail does indicate that processes are being followed and refined over time. A mature organization that is concerned with reducing risk should be able to produce evidence of a cadence of network scans, demonstrating the remediation of the most critical findings, as well as a network diagram showing the thought put into network segmentation. An organization that addresses security in an ad-hoc fashion relies on the best efforts of a small set of individuals. This creates risk to the organization because their tasks are neither repeatable, scalable, or auditable.
Cybersecurity Due Diligence Tactics:
- Unordered List
- Cybersecurity Program Maturity Review
- Governance, Risk Management and Compliance (GRC) Documentation Review
- Infrastructure Inventory & Analysis
- Dark Web Credential Scan
3. Severe, Parallel Cybersecurity Weaknesses
Mergers and acquisitions are often the product of one company’s strengths supplementing another company’s weaknesses. However, when merging companies have weaknesses in the same area, they could combine to create a major risk to the new entity. Start on the right foot with an external and internal vulnerability assessment to reveal exactly which pressing technical vulnerabilities exist in the environment.
Additionally, a SWOT analysis can assist the M&A committee in making next step decisions with confidence. Defining the strengths, weaknesses, opportunities, and threats between both entities creates a clear outline of procedures to carry forward and where technical improvements can be made.
Before joining systems, due diligence in mergers and acquisitions help both organizations understand where vulnerabilities lie and support discussions on how to best mitigate exacerbating the risks.
Cybersecurity Due Diligence Tactics:
- Unordered List
- SWOT Analysis
- External & Internal Vulnerability Assessment
- External Vulnerability Exploitation
4. Misaligned or Lack of Cybersecurity Strategic Roadmaps
Cybersecurity strategic roadmaps are an essential aspect of a healthy security program. This is the documentation that ensures the proper controls are implemented, tested, and continuously improving to protect the company’s information systems. Using a shoddy roadmap or none at all could cause friction during M&A because the combined security goals may be ill-defined or in conflict with one another. If either organization has insufficient cybersecurity roadmap documentation, that will likely be revealed during a SWOT analysis.
To avoid integration risks in mergers and acquisitions, start with cataloging all company assets. Businesses of any size should be able to quickly identify their most important IT systems and datasets and how those assets are protected and controlled. Once the assets have been identified, they document the access controls that ensure the right people can reach necessary data and the wrong people cannot. Next, they work on disaster recovery, and so on. A cybersecurity strategic roadmap formally documents the two organizations’ ideal security goals and the steps they’ll take to meet them.
Cybersecurity Due Diligence Tactics:
- Unordered List
- Strategic Roadmap
- SWOT Analysis
- Cybersecurity Program Maturity Review
- Infrastructure Inventory & Analysis
Still unsure about the cybersecurity integration risks in mergers and acquisitions? Reach out to the ProCircular team to learn more!
Each M&A process is unique, but ProCircular’s experts know how and where to find the most critical gaps that will create risk in the newly combined entity. Our deep bench of resources specializes in cybersecurity's both technical and compliance arenas to help you understand risk before and during M&A activities. ProCircular works to capitalize on every efficiency and deliver complete and accurate results on a compressed timeline. Click here or call 844-957-3287 to discover how ProCircular can help secure your M&A.