Cybersecurity Due Diligence in M&A

Why Cybersecurity Matters in M&A

Cybersecurity risk has become one of the most significant sources of post-close value destruction in M&A. High-profile breaches discovered after acquisition — such as the Marriott-Starwood incident — have resulted in regulatory fines, litigation, and reputational damage.

Buyers who fail to assess cybersecurity during diligence inherit not just the target's systems, but also its vulnerabilities, compliance obligations, and breach history.

Key Areas of Cybersecurity Assessment

A comprehensive cybersecurity diligence process evaluates both technical controls and organisational readiness.

• Network security architecture and segmentation
• Endpoint protection and threat detection
• Identity and access management (IAM)
• Data classification and protection
• Third-party and supply chain risk
• Security awareness training and culture

Common Cybersecurity Red Flags

Certain patterns frequently indicate deeper problems:

• No dedicated security function or CISO
• Outdated or unpatched systems in production
• Lack of multi-factor authentication
• No documented incident response plan
• History of unreported or poorly managed incidents
• Excessive privileged access without auditing

Regulatory and Compliance Considerations

Depending on the target's industry and geography, buyers may inherit specific compliance obligations.

Common frameworks include GDPR, SOC 2, ISO 27001, HIPAA, PCI DSS, and NIST CSF. Non-compliance can create material financial and legal risk.

Integrating Cybersecurity into the Deal Process

Cybersecurity should not be a last-minute add-on. The most effective approach integrates cyber assessment into the broader technology diligence workstream from the outset.

Findings should be translated into financial terms — remediation costs, insurance implications, and potential liability exposure — to inform deal pricing and negotiation.