Top 6 Security Issues in Mergers and Acquisitions

By Sabrina Stocker Sabrina Stocker has been verified by Muck Rack's editorial team
Published on August 12, 2022

Companies constantly try to up their game by merging with or acquiring other companies. Mergers and acquisitions, or M&A in finance shorthand, is one of the fastest growth methods, boosting the company’s capabilities and profit potential seemingly overnight.

But many companies rush the acquisition process and fail to do their due diligence to ensure a secure transition. Thankfully, though, cybersecurity is a more and more common topic in board room meetings, leading to greater attention paid to security issues.

Here are the six main security issues in mergers and acquisitions:

No security assessments before closing the deal

The leading cause of security concerns starts right at the beginning. The companies involved mainly focus on financial statements and projections, and they often fail to recognize the importance of security screenings.

Security screenings can be costly since most companies aren’t capable of conducting them in-house. Despite the cost, a security assessment is an integral factor in the overall cost/benefit analysis. If the acquiring company finds some cybersecurity risks, they can demand a better deal.

A security assessment can also be conducted post-acquisition before the two IT environments connect.

Data accessibility challenges

In the early stages of the M&A process, the acquiring organization needs access to all cybersecurity documentation, artifacts, and evidence. Small and medium-sized businesses are less capable of providing such information, leading to business risk during the due diligence period.

Even if the acquiring organizations perform a penetration test, that assessment will only provide a snapshot in time. It won’t give the historical background of the company’s security posture.

Human error and weak passwords

Moving to an entirely new IT environment can be challenging. Sometimes, there are so many differences that employees will take months to get in the groove of things. No matter how different the environments are, one thing will stay the same: the importance of strong passwords.

Passwords are at the heart of a company’s security posture. Weak passwords are a common cause of security breaches. They often stem from a lack of security awareness on the employees’ side. One way to solve the problem of weak passwords is by using a business-wide password management platform.

Phishing is another risk that companies are susceptible to because of human error. To avoid the risks of phishing, be sure to educate employees on what phishing is and how to avoid it.

Integration risks

Integration between the systems can take time. It often takes months, sometimes even years. When the systems aren’t fully integrated, it opens up a wide set of vulnerabilities. Hackers can be lurking in the old infrastructure, waiting to be unleashed once they’re integrated with the parent business.

Unclear roles and responsibilities and disgruntled employees can also lead to security risks during the transition phase.

The best approach to integration risk is to assume that the other side has already been compromised. With that approach, executives can map out a risk-averse integration strategy to ensure a smooth transition. An integration plan should be prepared well before the acquisition, so it’s ready to go from the first day.

Regulatory scrutiny

As the frequency of cyber attacks grows, regulators are much stricter about maintaining data privacy and sovereignty. The scrutiny also applies to mergers and acquisitions, where companies must ensure data compliance is a top priority. Non-compliance can lead to hefty fines and may even jeopardize the acquisition.

Regulation is a big part of M&A, as the practice is seen as anti-competitive. The added scrutiny from security regulations can be a significant challenge in finalizing a deal.

No knowledge of data asset inventory

Merging companies must know exactly how much data they have. They must know where it’s stored, how it can be transferred, and how it’s secured from outside threats. Taking in more data than one can handle can lead to unsafe practices in housing the additional data. That’s why data set inventory assessments are a security issue in the overall inventory planning process.

Final thoughts

Mergers and acquisitions are an everyday occurrence. They’re great for companies that want to increase their capabilities and grow rapidly. But M&As also bring significant security issues for the parties involved.

The main issue comes from not knowing the company’s cyber posture after closing a deal. It can then be tough to address potential gaps and integrate all systems smoothly. Human error is another factor, particularly during the transition phase, where employees aren’t fully briefed on their roles and are still adapting to the new systems.

With rising regulations around M&A security, companies must rethink their approach to ensure a smooth and safe transition.

By Sabrina Stocker Sabrina Stocker has been verified by Muck Rack's editorial team

Sabrina Stocker is a Features Columnist at Grit Daily. Based in Los Angeles, she is originally from the UK and has a storied career in the events and awards business.

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