Risks Associated with M&A in Terms of Security and Compliance

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Risks Associated with M_A in Terms of Security and Compliance-01

Mergers and acquisitions (M&A) can be full of ambition, opportunity, and inventive thinking, but they can also be risky. The financial, operational, and contractual risks are usually the focus of merger and acquisition risk assessment and appraisal. However, the often-overlooked information security and compliance risk associated with M&A is becoming an increasingly critical aspect of the pre M&A analysis.

Due to the economic stagnation induced by the pandemic, M&A activity slowed at the start of 2020. Many non-essential firms closed their doors and went into hibernation, while countless others resorted to remote working to keep things going. With 2021 looking up to be one of the busiest mergers and acquisitions years on record, it’s more vital than ever to emphasize the security and compliance risks that come with the process.

Risk Mitigation in Mergers and Acquisitions

Prior to a merger and acquisition

The security posture of a potential target acquisition should be examined as early as possible in the M&A process, with the right experts participating. High-level security evaluations may be accessible for inspection as part of the M&A screening process, and publicly available information such as security breaches reported in news articles and public filings are also good places to start.

Also Read: Understanding Cyber-Risk is Key to Post-Pandemic Recovery and Growth

During mergers and acquisitions

In M&A, due diligence is essential for risk mitigation. The level of inquiry needed is determined by the risk profile, which might vary depending on the target organization’s business. A smaller corporation is more likely to have less mature information security policies and procedures if it is in a new business area and/or geographic location. Typical due diligence activities include:

Data asset inventory: Auto-discovery systems can benefit from the creation of a data asset inventory to understand the amount of data a target organization has, where it is housed, and how it is transported. It can aid in the identification of potential information security threats, as well as the development of integration plans that will be necessary after the transaction is completed. This can also include regulatory compliance evaluations for data protection laws such as GDPR and HIPAA.

Detailed security assessments: Security risk assessments of the target organization’s infrastructure, networks, systems, and policies should be done to detect security and compliance gaps and to determine any remediation that may be required.

Third-party risk assessment: A review of the target organization’s third-party risk management program should be completed, including an assessment of key suppliers and partners, to ensure that robust compliance and security practices are proactively assessed and continuously monitored, mitigating the risk introduced by the third-party landscape.

Also Read: Secure Access Service Edge – The Future of Network Security

Post a merger and acquisition

Consolidation of security and compliance processes is prevalent but often underestimated concern during the M&A process. The company should determine whether to take a “best of breed” approach or to blend existing processes and technology while bridging any gaps. Before the purchase is closed, an integration plan should be established and ready to go on day one. Furthermore, security monitoring and vigilance should be maintained because, once a contract is finalized, there may be heightened threats during the convergence of infrastructure and networks.

Let’s say a company decides to pursue a merger or acquisition. In that situation, it should conduct comprehensive due diligence prior to, during, and after the M&A process to identify risks and develop appropriate risk mitigation methods. Although this is a difficult and time-consuming task, the fines associated with non-compliance with data privacy legislation can be significantly more expensive.

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