Mergers and acquisitions have always presented financial, legal, and reputational risks. And in today’s global data economy, cyber due diligence must be a part of any business investment. Both businesses and regulators acknowledge customer data as a powerful commodity. Thus, it is important for a successful negotiation and deals closure that the acquirer understands the cyber risks it could inherit before and after they make an investment. Read on to know how cyber due diligence informs a merger and acquisition and the steps that must be taken to get it right:
The Barrier to Undertaking Cyber Due Diligence
Usually, the problem is that cyber due diligence is misperceived as somebody else’s problem. Thus, many think it could be sorted after a transaction or that it can be resolved under the radar from regulators or the public eye. However, this is not the case. Every business that wants to invest in or acquire another business should demonstrate they have undertaken pre-transaction cyber due diligence to the regulators if a breach will be discovered. The business community should learn from examples like the 2016 incident when Verizon leveraged findings from their cyber due diligence on two data breaches at Yahoo!. The telecoms giant negotiated a deal whereby Yahoo! would continue to be responsible for liabilities from shareholder lawsuits and federal investigations after the acquisition. Elijah cyber due diligence experts will help educate any acquiring companies about the importance of cyber due diligence.
Cyber Due Diligence is an Important Negotiation Tool
If cyber due diligence is performed as a pre-transaction precaution, it can be an essential tool. It serves as a negotiation tool if acquisition decision-makers identify red flags from the due diligence process. Also, the findings of cyber due diligence can be used for benchmarking other acquisitions. Companies will find this helpful if they are rapidly expanding their portfolios. Standardizing cyber due diligence outputs with the findings from conventional due diligence practices allows investors to have a holistic view of risks across a portfolio. Deal teams can also leverage the data t put the investor in the best possible position to negotiate the acquisition price and terms.
How It Works
Cyber due diligence specialists who specialize in cyber threat analysis should perform pre-transaction cyber due diligence. Their job could include evaluating the external cyber threats and internal maturity of a target company. Also, they need to determine the costs of remediating identified security weaknesses. They have to share the outputs of these evaluations with deal teams to let them make calculated risks about the acquisition and drive the decision-making on investing.