If you’re in the business world, you’ve probably come across the term “M&A” or mergers and acquisitions. This process is when two companies combine their resources, workforce, and technology to achieve business growth. It’s a highly strategic move that can pay off big time. However, with this level of integration comes the concern for cybersecurity.
Cybersecurity is a critical area to consider during M&A transactions. Not only does it determine how you secure your data, but also how you protect your intellectual property, employees, and clients. Failure to prioritize cybersecurity can put your business at risk of losing all these assets and facing lawsuits, regulatory fines, and reputational damage. The best part is that you can get started with cybersecurity compliance right from your development stage with docker scanning, like in this JFrog guide.
Understanding M&A Basics
Before diving into cybersecurity, it’s essential to understand the fundamentals of M&As. Many factors can drive companies to pursue mergers and acquisitions, including expanding into new territories, diversifying their products and services, acquiring key talent, and increasing market share. These deals can either be friendly or hostile, depending on the degree of cooperation between the companies involved.
When two companies come together through M&A, they form a new entity that combines their assets and liabilities. Throughout the process, various business departments, including financial, legal, human resources, and technology departments, must work together to facilitate the transaction. Each of these departments ensures that cybersecurity is considered at every phase of the transaction, including due diligence, contract negotiation, and integration.
Understanding Regulatory and Legal Implications Surrounding Cybersecurity
Due to the increasing threat of cyber-attacks and data breaches, regulatory bodies worldwide have doubled down on firms’ cybersecurity practices. Regulators such as the Securities and Exchange Commission (SEC) and General Data Protection Regulation (GDPR) demand that companies prioritize cybersecurity and promptly report any breach to the relevant authorities.
Incorporating regulatory compliance into your cybersecurity plan is non-negotiable during M&A transactions. Legal frameworks covering data protection, cybersecurity, and intellectual property must be considered to avoid any legal and regulatory liability. During the due diligence process, this should be a priority and conducted by professional cyber auditors.
Assessing Cybersecurity Risks
One of the most significant risks in M&A transactions is cybersecurity. Before purchasing or merging with a company, conducting a cyber-risk assessment to identify potential vulnerabilities is crucial. Many factors contribute to cyber-risk, including system architecture, backup recovery protocols, encryption, and threat intelligence solutions.
As you assess potential risks, you should consider the cybersecurity history of the target company and the number of past security incidents. Key considerations include meeting compliance requirements, risk tolerance, and the severity and frequency of past cybersecurity breaches. Conducting a thorough cyber-risk analysis helps to develop a comprehensive cyber-risk management plan.
Comprehensive Due Diligence
A comprehensive due diligence process gives insights into the target company’s cybersecurity efforts and helps determine the level of risk involved in the transaction. It should evaluate the design, effectiveness, and maturity of the target organization’s cybersecurity program, including its policies, procedures, and technology controls.
As you carry out due diligence, consider incorporating additional assessments such as vulnerability assessment, penetration testing, network analysis, and an insider threat evaluation. Collecting a broad range of information helps validate the effectiveness of the target company’s cybersecurity controls.
Data Ownership, Transfer, and Storage
Data security is paramount in M&As. The acquiring company must ensure it obtains all the rights and permissions to the target company’s data. Owning and transferring data rights helps avoid disputes and legal challenges arising from the transaction.
A detailed data inventory list should be created and audited to determine the data’s location, storage, and sensitivity. Both companies should identify the necessary data and ensure it’s stored and transferred securely. Encryption and access control should be used throughout the transfer and storage of sensitive data.
Crafting an Effective Cyber Incident Response Plan
No matter how secure your system is, it’s essential to have an incident response plan in place before the transaction. Creating a comprehensive incident response plan helps to minimize the damage of any potential cyber-attacks and ensure that data is handled correctly. This should include a detailed mapping of all data assets, IT infrastructure, and processes used in the target company.
The post-merger integration process should also consider security configurations for combining networks, systems, and applications. As you evaluate these steps, be sure to identify existing threats and develop solutions for preventing them from occurring again in the future.
These steps can look like:
- Establish roles and processes for responding to security incidents
- Know which data sources exist in each company
- Create a plan for combining networks, systems, and applications
- Identify existing threats and develop solutions for preventing them from happening again in the future
- Ensure that all transferred data is stored securely using encryption and access control methods
- Develop a comprehensive cyber-risk management plan
- Monitor the post-merger environment closely to detect any anomalies or breaches in cybersecurity protocols