The vital role of cybersecurity in business acquisitions

Amid rising cyber threats, integrating cybersecurity into the due diligence process for business acquisitions is becoming increasingly important, writes Mark Butler

With the recent rise in digital data breaches, cybersecurity’s critical role in due diligence engagements during business acquisitions cannot be underestimated.

Embedding a cybersecurity-focused lens into the due diligence framework is an essential part of helping accountants and their clients tackle and manage potential vulnerabilities before investing proactively.

This approach can strengthen defence against cyber threats, support informed, strategic decision-making and enhance a company’s resilience in the face of digital-age risks while ensuring full visibility of the purchaser’s potential exposure.

The urgency of prioritising cybersecurity due diligence hinges on four key considerations:

1. Assessing the business’s technological framework

   In today’s digital-driven business environment, a company’s technological infrastructure is integral to its operational success.

   Cybersecurity due diligence offers a deep dive into the resilience of the business’s networks, systems and software, revealing potential vulnerabilities.

   This critical assessment aids in understanding the implications and costs associated with securing or upgrading technological assets post-acquisition, facilitating strategic planning and integration efforts.

2. Ensuring the security of sensitive information

   The acquisition process provides access to sensitive data, from client details and intellectual property to financial records and employee information. A focused cybersecurity due diligence process is crucial for evaluating how robust the target company’s data protection measures are.

   Early identification of security gaps enables the implementation of stringent safeguards, thus securing the integrity and confidentiality of vital data assets against potential breaches.

3. Mitigating financial and legal exposures

   Cybersecurity breaches carry operational risks and significant financial and legal ramifications.

   A thorough cybersecurity due diligence process can uncover potential liabilities arising from data breaches, regulatory non-compliance and other legal challenges.

   Forearmed with this knowledge, acquirers can better negotiate the terms of the acquisition, allocate resources for addressing identified risks, and adjust the purchase price to reflect any investments needed to improve cybersecurity.

4. Safeguarding business continuity and brand reputation
   Maintaining business continuity and reputation is paramount for a successful acquisition.
   
   Cyber incidents can severely disrupt business activities, erode customer trust and damage brands. By incorporating cybersecurity due diligence, potential threats can be identified and mitigated through comprehensive incident response planning.
   
   This proactive strategy ensures that appropriate measures are in place to minimise the impact of cyber threats on the company’s operational integrity and reputation.

Prioritising cybersecurity within the due diligence framework is not merely a precautionary measure; it is a strategic business imperative that gives the purchaser adequate visibility of the acquired business.

It can support a thorough assessment of technology-related risks, fortify the protection of sensitive data, mitigate potential financial and legal consequences, and protect the viability and reputation of the business.

Finding expertise in cybersecurity can be difficult, however. I advise seeking out recognised specialists offering comprehensive assessments that adhere to international standards.

This approach during the due diligence process can help accountants and their clients to understand and proactively address the cybersecurity challenges that come with business acquisitions, laying the groundwork for long-term success.

Mark Butler is Managing Partner at HLB Ireland