How To Handle Security Due Diligence During The M&A Process

1. How To Handle Security Due Diligence During The M&A Process More often than not, we see our clients show interest in other companies. This can come in many different forms, but it's usually done through an exciting M&A process. This is a stressful moment for the leadership of both the buying company and the selling company. Both have been through a long process with the business, technical, marketing and legal teams, and all are very much interested in making it all happen. Both the seller and the buyer are highly engaged, and timing is crucial. Members of the legal department then begin asking some questions, and they figure out that they would like to learn more about the company they are buying, so they wish to perform due diligence on the cybersecurity of the platform, systems and company.

2. The Seller They have concerns, as they would like to preserve their good impression on the buyer. On the other hand, however, they have to comply with the buyer's requests and, in turn, with the due diligence requirements. Signing an NDA on these events is common, as the very nature of the assessment and process is extremely sensitive.

3. The Buyer They have many of their own concerns, some regarding the maturity of the product and system as well as others regarding compliance and possible violations and leaks. A cybersecurity due diligence review should include an evaluation of all of the different security aspects of an organization — from policies, procedures, account management, general IT security and regulations all the way through to applications, API and development security and cloud and infrastructure security.

4. When evaluating the system, product and applications, the evaluating party should perform a deep technical security evaluation that includes penetration testing and full cloud security review. Without performing the proper cybersecurity due diligence, there is a chance that significant security holes could be identified after the M&A, which may cost a lot to fix as well as harm the reputation of the buyer. The final product to be expected besides an evaluation should be a prioritized work plan for the companies to mitigate the risks identified and live happily ever after.

5. The Process The party that performs due diligence should be looking to facilitate the deal between the buyer and the seller and understand that, while it is a very stressful process, their job is to mediate between parties on the cybersecurity side. That said, there is an expectation for the full cooperation of the seller; from our experience, it is very rare that buyers will back out from a deal. More often, they would like to understand the security gaps between what the company currently has and the best practices and industry standards that the company should adhere to.

6. The Value From our experience, performing these assessments can increase the confidence of the buyer in the deal to buy from the seller and allows them to see a different perspective of the seller's team in action. The valuation of the deal may change following these due diligence processes, but this process allows the buyer to know what they are buying and not buy a cat in a bag. The important thing is to be prepared for the process.

7. Komodo Consulting is a high-end cyber security firm that specializes in Third-Party Cyber Risk Assessment, Application Security, Black-Box Penetration Testing, Red-Team Exercises, serving Fortune 500 companies in Israel, Europe, and the US. Founded by leading consulting experts with decades of experience, the team includes seasoned security specialists with worldwide information security experience along with military intelligence experts.

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