M&A Cyber Blind Spots: Navigating the Unseen Risks (A CISO's View)

Mergers and acquisitions (M&A) are powerful engines for business growth and strategic positioning. They represent massive undertakings driven by executive teams focused on financial gains, operational synergies, and market advantage. However, lurking beneath the surface of these complex transactions is a significant area of risk that is often underestimated and, critically, overlooked in the early stages: cybersecurity.

For CISOs and their security teams, M&A isn't just a change in organizational structure; it's a period of heightened vulnerability and a heavy workload. While deal teams celebrate, security professionals are tasked with integrating disparate systems, cultures, and workforces, often inheriting unknown and potentially severe cyber risks. This reality aligns with what we might call the "Shadow CISO" perspective – the critical view from the trenches of security that deals with the difficult, under-discussed challenges ignored in the boardroom.

Why is Cybersecurity Often Overlooked in M&A Deals?

Despite the widely recognized threat cybersecurity poses to businesses, its role is frequently neglected during M&A negotiations and due diligence. Research indicates that less than 10% of deals involve scrutiny of cybersecurity practices. This isn't due to a lack of awareness of cyber risk generally, but rather a prioritization of other deal drivers. Financial, operational, and positioning motivations tend to dominate the early discussions. Technology integration is seen as a potential competitive advantage, but the security implications may take a backseat to the perceived benefits.

This lack of early engagement means cybersecurity teams are often simply tasked with integration post-acquisition. Critical issues that could have been deal breakers or influenced the valuation are only truly discovered and grappled with after the deal is signed, potentially leading to significant financial, operational, and reputational implications.

The Key Cybersecurity Risks Inherited in M&A

The sources highlight a range of risks that CISOs face during and after M&A:

• Inherited Vulnerabilities and Outdated Systems: Acquiring a company means inheriting its existing security weaknesses. This includes unresolved issues like outdated systems, technical debt, domain expirations, and lack of administrative credentials. Legacy and homegrown applications are particularly risky, often lacking modern security standards like MFA and SSO.
• Data Integration Challenges: Merging IT systems is complex and can create vulnerabilities if not planned carefully. Separating data and infrastructure, especially when resources are shared, is a significant challenge. Inconsistent data protection measures across entities can expose sensitive information.
• Software Supply Chain and Third-Party Risks: Acquired companies often rely on third-party software and vendors, which can introduce new security risks to the combined entity. Attacks on software supply chains, particularly exploiting open-source components, are rapidly increasing, and traditional due diligence methods often have blind spots here. Vendor failures are a growing cause of insurance claims related to cyber incidents.
• Human and Cultural Factors: Beyond technology, people are identified as a critical area of vulnerability. Onboarding new employees brings unknowns regarding device security, existing security habits, and adaptation to new systems and policies. Cultural misalignment regarding cybersecurity priorities is often harder to address than technical unification and can create exploitable gaps. Unclear roles and responsibilities, disgruntled employees, and changes in operating models can also increase risks.
• Shadow IT and Unmanaged Devices: Acquired employees may use personal or unmanaged devices and adopt practices that don't align with the acquiring company's policies, leading to shadow IT. This increases the attack surface due to unknown vulnerabilities and conflicting security hygiene.
• Lack of Visibility and Incident History: In the chaos of M&A, security measures can become unclear. Critical cybersecurity risks may only be encountered after the deal begins. Even if a target company discloses significant breaches, material issues like insufficient privacy policies or non-compliance might not be readily apparent during standard due diligence. Attackers recognize this confusion and target entities during major events.
• Regulatory Compliance Issues: Different jurisdictions have varying regulations (like GDPR, CCPA, HIPAA, etc.), and integrating companies means navigating potentially conflicting requirements. Non-compliance can lead to hefty fines and legal action.

The Post-Acquisition Reality: The "Shadow CISO" Grind

Once the deal closes, the CISO's real work often begins. They are tasked with the complex, time-consuming, and often political process of integrating security postures. This involves:

• Unifying Technologies: Reviewing, rationalizing, and integrating different technology stacks, including security tools, platforms, and identity management systems. Resolving conflicts and identifying redundancies is key.
• Aligning Policies and Procedures: Harmonizing divergent security policies, access management rules, incident response plans, and compliance procedures. This is often more a political than technical challenge, requiring collaboration across different departments and potentially navigating power dynamics.
• Integrating People and Culture: Merging security cultures and ensuring all employees are trained and compliant with the new standards. This involves addressing potentially deeply ingrained habits and fostering trust. Significant effort is needed to ensure employees feel secure and valued amidst the change.
• Managing Access Control: A substantial task involves merging user directories, defining user groups, and deconflicting policies to implement appropriate access permissions (least privilege) without disrupting operations. Acquired company employees should initially be treated as third-party, high-risk users when it comes to trust and access.
• Maintaining Visibility: In the midst of integration, redundant systems may be running in parallel, and the division of responsibilities can be unclear, creating opportunities for attackers. Maintaining clear oversight and control is essential.

The sheer scale and difficulty of managing security concerns across both companies' user groups and devices can make the process slow and laborious. On average, integrating systems, apps, data, users, and other assets can take 18 months. Failing to maximize time-to-value due to integration issues can destabilize the company and result in up to 55% of M&As not realizing their full value.

Strategies for CISOs to Navigate M&A Risks

To effectively address these challenges and move from a "Shadow CISO" reacting to problems to a strategic partner proactively mitigating risks, CISOs should:

• Be Involved Early and Often: Push for cybersecurity expertise to be included from the get-go in the transaction process, not just post-acquisition. Early involvement allows for potential issues to be managed proactively.
• Conduct Comprehensive Due Diligence: Go beyond surface-level technical assessments like penetration tests and SOC 2 reports. Conduct a thorough risk profile of the target, investigating legal standing, reviewing incident response plans, assessing vendor management programs, and understanding data ownership and access. A combined IT and security assessment provides a more thorough picture.
• Focus on the Human and Cultural Elements: Recognize that people and processes are often the weakest links. Examine existing security habits and preparedness among users. Plan for cultural integration by examining differences, defining the new culture, and developing a cultural integration plan. Listen to employees and customers to understand concerns and build trust.
• Embrace Zero Trust Access: Implement a Zero Trust security model ("never trust, always verify"). This approach is particularly suited to M&A as it allows for secure access control for new users and systems without requiring full network trust or complex migrations. It enforces least privilege access regardless of device or user status.
• Develop Robust Incident Response Plans: Ensure incident response plans for both entities are reviewed, aligned, and tested through drills. Clearly define roles, responsibilities, communication protocols, and recovery processes for the combined organization. Review cyber insurance policies for gaps.
• Assess Supply Chain Risk: Implement modern software security assessments that go beyond traditional methods to detect sophisticated attacks in third-party software and open-source components.
• Secure Legal Protections: Work with legal teams to incorporate specific cybersecurity representations, warranties, and indemnities in the M&A agreement to provide recourse for undisclosed issues.
• Plan for Post-Acquisition Audits and Continuous Monitoring: The work doesn't end at closing. Schedule regular risk assessments and establish continuous monitoring mechanisms to detect and respond to threats promptly.

Conclusion

M&A transactions are fraught with potential pitfalls, and cybersecurity risks are among the most significant. These risks, stemming from inherited vulnerabilities, complex integration challenges, cultural clashes, and the ever-present threat of cyberattacks, highlight the critical need for the CISO's perspective throughout the entire M&A lifecycle.

By incorporating cybersecurity into the due diligence process from the beginning, planning meticulously for post-acquisition integration, and focusing on both the technical and human elements of security, companies can mitigate risks, protect their investment, safeguard their reputation, and ultimately avoid buyer's remorse. The CISO is not just an integrator but a vital strategic partner in ensuring the success and security of the combined entity.