Common Pitfalls in Cybersecurity Due Diligence

How to Ruin Your Acquisition Deal

Conducting cybersecurity due diligence is essential in any merger and acquisitions project, but there are several common pitfalls that can undermine the process.

Overlooking Legacy Systems and Forgotten Applications

Legacy systems and forgotten applications can harbor vulnerabilities that are often overlooked during due diligence.

Ensure a thorough inventory of all systems and applications, including those that are no longer actively used.

How to do it?

• Conduct Comprehensive Audits: Regularly audit all systems and applications to identify any that may have been forgotten or are no longer in use.

• Update and Patch: Ensure that all legacy systems are updated and patched to mitigate vulnerabilities. Make sure to assess the risk of wach asset upfront.

Inadequate Assessment of Third-Party Risks

Third-party vendors and partners can introduce significant cybersecurity risks die to their interfaces to your assets. Therefore, evaluate the cybersecurity posture of all third-party vendors and partners:

• Vendor Risk Management: Implement a robust vendor risk management program that includes regular assessments of third-party cybersecurity practices.

• Contractual Obligations:

  Ensure that contracts with third parties include specific cybersecurity requirements and compliance obligations.

Failure to Identify Regulatory Compliance Issues

Non-compliance with cybersecurity regulations can lead to legal and financial penalties. Assess the target company's compliance with relevant and applicable cybersecurity regulations and standards:

• Regulatory Review:

  Conduct a thorough review of the target company's compliance with applicable regulations (e.g., GDPR, HIPAA).

• Gap Analysis:

  Identify any gaps in compliance and develop a plan to address them.

Neglecting to Assess Incident Response Capabilities

Inadequate incident response capabilities can aggravate the impact of cybersecurity incidents. Evaluate the target company's incident response and recovery capabilities:

• Incident Response Plan:

  Review and test the target company's incident response plan.

• Tabletop Exercises:

  Conduct tabletop exercises to ensure the effectiveness of the incident response plan.

Underestimating the Importance of Cultural Integration

Cultural differences in cybersecurity practices can create vulnerabilities during integration. Consider the cultural aspects of cybersecurity practices during the due diligence process.

• Cultural Assessment:

  Evaluate the cybersecurity culture of the target company and identify any significant differences.

• Integration Plan:

  Develop a plan to integrate and align cybersecurity practices and cultures post-acquisition.

Insufficient Focus on Data Protection and Privacy

Inadequate data protection can lead to data breaches and loss of sensitive information. Assess the target company's data protection and privacy practices.

• Data Inventory:

  Identify and classify sensitive data held by the target company.

• Data Protection Measures:

  Evaluate encryption, access controls, and data handling procedures.

Ignoring the Human Factor

Human error and insider threats can pose significant cybersecurity risks. Evaluate the target company's approach to managing human-related cybersecurity risks.

• Training and Awareness:

  Implement regular cybersecurity training and awareness programs for employees.

• Insider Threat Programs:

  Develop programs to detect and mitigate insider threats.

Closing Thoughts

Being aware of these common pitfalls might save your deal. By taking proactive steps to address them, you can enhance the effectiveness of your cybersecurity due diligence process and reduce the risk of acquiring a company with hidden cybersecurity vulnerabilities.

Ultimately, nobody wants to be come the next Marriott/Starwood incident.