Cybersecurity Due Diligence Is Critical
The 2015 security breach of major insurer Anthem, which left an estimated 80 million customer records exposed, and the compromise of the information of 157,000 customers of British firm TalkTalk, are just two out of many examples of serious high profile cyberattacks that have spurred concerns over the security of corporate information and demonstrated that every sector is vulnerable to cyber threats.
In response to the growing cybersecurity challenges facing corporate mergers and acquisitions (M&A), West Monroe Partners, a Chicago based management and technology consulting firm, recently released a report providing insight into the complexities and challenges of cybersecurity due diligence in the acquisition process.
West Monroe Partners commissioned Mergermarket, a New York based media company, to interview a number of North America-based senior M&A practitioners, including corporate executives and private equity partners.
The 28 page report, “Testing the Defenses: Cybersecurity Due Diligence in M&A,” revealed that the potential costs of cybersecurity problems are enormous. In 2015, the Identity Theft Resource Center reported 781 data breaches at companies in the United States, with the average cost of a data breach being $3.79 million, according to a survey commissioned by the International Business Machines Corporation (IBM).
Fortunately, acquirers are starting to take note. Over three-quarters of respondents said that significant data breaches and associated costs over the past two years have prompted more attention to the cybersecurity of M&A targets. For example, the practice of investigating cybersecurity practices of the other business before a key merger is becoming increasingly important for corporations.
“When a data breach lands on the front page of CNN.com or The Wall Street Journal, companies start to pay closer attention to the issue. In the last 18 to 24 months, we have really started to see the importance of cybersecurity resonate with our clients.” Said West Monroe’s Managing Director Matt Sondag.
However, more than a third of acquirers said they had discovered a cybersecurity problem at an acquisition after a deal went through, indicating that standards for due diligence remain low.
The report also found that in the majority of cases, cybersecurity issues alone are not enough to cause a buyer to abandon an acquisition with 77 percent of respondents saying that they have never walked away from a deal for that reason.
The study’s findings led to five main findings:
- Cybersecurity diligence is no longer optional.
- Knowledgeable personnel are key.
- Good governance trumps bells and whistles.
- Be practical when assessing risks.
- Remember to implement deal protections.
Good governance is a crucial aspect of a cybersecurity strategy and must include ongoing review and renewal of best practices. Even with the most cutting-edge technology, an organization without effective security governance is not equipped to protect itself against cyberattacks.
“In reality, it doesn’t matter how many tools you have and how good or bad they are if you’re not actively managing the use of them and constantly adjusting your security program,” said West Monroe’s Senior Data Security Architect Paul Cotter.
