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  • Writer's pictureNth Generation

Cybersecurity Concerns as it Relates to Mergers and Acquisitions for Small to Mid-size Companies

When evaluating the cybersecurity posture of a target company in a merger and acquisition (M&A) involving small to mid-sized companies, there are some important cybersecurity concerns that need to be addressed. Within the M&A process, it is very important to have a good understanding of the potential risks, ensuring secure integration. In many cases, target companies possess valuable assets, such as customer data, intellectual property, and sensitive business information, which can make them attractive targets for cyber criminals.

Quite often some important elements are overlooked to expedite the acquisition. Questions that should be considered are:

  • Does the acquiring company want the target company because it is a strategic move? In this case, security of the target company is usually more scrutinized.

  • Does the acquiring company target the company because it is a “good deal”? In this case, security tends to be less important.

  • Is the target company better postured than the acquiring company from a security standpoint and possibly a good reason or primary reason for acquisition?

Whatever the business goal is, a firm and complete understanding of the target company status is important.

Outlined here are some key steps to consider when evaluating the target company's cybersecurity posture:

Cybersecurity due diligence Proper cybersecurity due diligence is crucial before entering into a merger and acquisition deal. This requires conducting a comprehensive assessment of the target company's cybersecurity environment. This involves assessing the cybersecurity posture of the target company, including its policies, procedures, standards, and security controls; as well as reviewing their security documentation, incident response plans, security audits or assessments, and any past security incidents or breaches. Additionally, interviewing key personnel responsible for cybersecurity can provide valuable insights. Identifying potential risks and vulnerabilities early through this evaluation process may help mitigate future challenges post-acquisition.

Data inventory, privacy, and protection

Parent or merging companies need to ensure they have a comprehensive understanding of the data they will be acquiring, including personally identifiable information (PII), intellectual property, and sensitive business information. This requires evaluating how the target company collects, stores, processes, and protects data, as well as assessing compliance with relevant data protection and privacy regulations for their geographic area, county, or state. It is important to identify and evaluate the types of data the target company handles, and determine if appropriate data protection measures, such as encryption and access controls, are in place throughout the data lifecycle.

Integration of IT systems and technical assessment

Integrating the IT systems of merging companies poses cybersecurity challenges, with the end goal of consolidating networks, applications, and data. This can introduce new vulnerabilities if proper security controls are not implemented during the process. To address this, it is important to conduct a thorough security assessment of both organizations' systems and develop a well-defined plan for secure integration. This includes performing a technical assessment of the target company's IT infrastructure, systems, and applications, which may include vulnerability scanning, penetration testing, and security configuration reviews to identify potential vulnerabilities, misconfigurations, or weaknesses in the target company's and possibly the parent company’s technology infrastructure. Another often overlooked consideration is the opportunity to consolidate security spend and protection mechanisms.

Vendor and third-party risk management

Merging companies often share common third-party vendors or service providers, making it essential to assess the security practices of those respective vendors to ensure they meet the desired standards. A weak link in the supply chain can expose both the acquiring and target companies to cyber threats. To address this, evaluate the target company's relationships with third-party vendors and service providers, assessing their due diligence. Be sure to review contractual obligations for security controls, and ongoing monitoring and cyber security practices. By identifying any potential risks introduced through these relationships, steps can be taken to mitigate them effectively prior to integration with the acquiring company.

Security culture and employee awareness training

During M&A, acquiring company employees may face significant changes in their roles and responsibilities. It is important to provide security awareness training to ensure employees are educated about potential cybersecurity risks, such as social engineering attacks or phishing attempts. This training should emphasize the importance of reporting suspicious activities and maintaining good cyber hygiene. In addition, evaluating the target company's security culture and employee awareness programs is also important. This should include assessing the level of security awareness training provided to employees, the enforcement of security policies, and the overall commitment to cybersecurity throughout the organization.

Incident response and business continuity capabilities

Merging companies need to establish an effective incident response plan and ensure business continuity in the event of a cyber security incident. This includes having incident response teams in place, regularly testing incident response plans, and identifying critical business functions to prioritize during integration. In addition, assessment of the target company's incident response capabilities should include their ability to detect, respond to, and recover from cybersecurity incidents; review their incident response plans; incident handling procedures; and coordination with external entities, such as law enforcement or incident response service providers.

Regulatory compliance review

Evaluate the target company's compliance with relevant industry-specific regulations, such as the General Data Protection Regulation (GDPR) or the Health Insurance Portability and Accountability Act (HIPAA), Payment Card Industry Data Security Standard (PCI DSS), or other regional data protection laws that must be considered during M&A activities. Identify any compliance gaps and potential risks associated with non-compliance. It is important to keep in mind that failure to comply with these regulations can lead to legal and financial consequences.

Legal and regulatory considerations

Engage legal counsel to assess any legal or regulatory implications related to the target company's cybersecurity posture. This may include reviewing past legal actions, regulatory fines, or potential liabilities associated with data breaches or non-compliance.

Summary and how Nth Generation can help

To address these concerns effectively, it is advisable to involve cybersecurity professionals at the start of the M&A process. Engaging Nth Generation cybersecurity experts provides valuable assistance in assessing risks, developing mitigation strategies, and ensuring a secure integration of systems and data. By conducting these assessments effectively, they can identify potential risks, provide recommendations for risk mitigation, and help ensure a smooth integration process with minimized cybersecurity vulnerabilities.

Engage Nth Generation to perform one or more of the following module assessments: Security Testing

Module 1 - General Assessment

  • A high-level external security risk and susceptibility to ransomware

  • Data Risk Assessment

  • Cyber Asset Attack Surface Management Assessment

  • Center for Internet Security (CIS) Gap Assessment

Module 2 - Ransomware Readiness Assessment (RRA)

Nth’s Ransomware Readiness Assessment (RRA): deployed and executed within the designated customer’s (target) environment. This assessment is pre-planned and coordinated with the target company to determine appropriate machine(s) to either create or leverage during the engagement.

Module 3 – Penetration Testing and/or full Red Teaming engagements

  • External Network Pentest

  • Internal Network Pentest

  • Open-Source Threat Intelligence Evaluation

  • Social Engineering

Let us help you to evaluate potential risks and cybersecurity posture associated with a planned acquisition! Request an assessment here: Nth Security Complimentary Assessments


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