Cybersecurity in Private Equity: From Checking Things Out to Post-Deal Life

Investors are always on the lookout for their next golden investment opportunity (“I’m just browsing!”). But, as we know, the success of an acquisition doesn’t just depend on crunching numbers and forecasting growth. It also hinges on a private equity target’s cybersecurity posture. The journey from “just checking things out,” otherwise known as due diligence, to post-acquisition can be fraught with challenges. Managing cybersecurity effectively can make all the difference between a smooth transition and a rocky road.

Picture an investor eyeing an exciting new opportunity: a tech company known for its innovative data analytics solutions. The acquisition promises a substantial return on investment, with the target poised to revolutionize the market. But before the ink dries on the contract, investors must navigate the critical stages of due diligence and post-acquisition integration, with cybersecurity playing a leading role.

The devil you know is easier dealt with than the one you don’t, so we’ve outlined the challenges you may face during this journey:

Challenges in Due Diligence

1. Comprehensive Assessment: The first obstacle investors face is wrapping their arms around the target’s cybersecurity posture. They’ve got to dig into the company’s current policies, compliance status and incident response plans. Plus, they need to assess the target’s vendor relationships, knowing that third-party vulnerabilities can open the door to significant risks.

2. Cyber Threats: Savvy investors have done their homework and know that cyber threats have become increasingly sophisticated, with attackers targeting companies for their valuable data. The potential for data breaches and cyber-attacks is a massive concern, as incidents can result in significant losses in money, regulatory fines or damaging reputations.

3. Regulatory Compliance: Investors must also ensure that their technology unicorn target meets relevant regulatory standards, including SEC, CMMC, state privacy laws and industry-specific regulations. Failing to comply can result in hefty fines and loss of investor trust, making this an aspect of due diligence that should not be overlooked.

Integration Post-Acquisition

When everything comes back squeaky clean, or those skeletons in the closet have been uncovered and addressed, it’s time to think about integrating the target company’s cybersecurity technology post-acquisition and to be wary of, yes – more potential challenges: 

1. Merging Systems: Integrating the target’s cybersecurity measures with investor’s existing systems has the potential to reveal gaps that need to be closed. Often, systems and operations will vary between the two parties, whether exponentially or less. Regardless, this process requires doing the delicate dance of blending security practices and ensuring both companies meet regulatory standards. This cannot be done successfully without careful planning and a thoughtful time investment.

2. Business Continuity: As investors work to integrate the new acquisition company, they face yet another hurdle: maintaining business continuity. Any disruption in the acquisition’s operations can compromise its ability to function effectively, impacting its financial stability and reputation. So while you work to get the new company integrated in your cybersecurity systems, you can’t stop operations for risk of major disruption to the business’s continuity.

3. Vendor Management: Investors must realize the importance of managing the acquisition’s third-party vendors, ensuring they too comply with security standards and contractual obligations. If you haven’t had enough fun evaluating the acquired company’s systems, you also need to make sure you’re examining vendors’ security posture and addressing potential vulnerabilities throughout the supply chain.

While this might not be the most glamorous part of an acquisition, it is necessary for long-term success and operational efficiencies. Lucky for you, Sikich has an entire team dedicated to performing this cybersecurity due diligence work, with a specialization in the private equity industry. Talk to our team to learn more.

In the face of these tricky and super-sensitive challenges, private equity investors rely on Sikich, a trusted expert in cybersecurity solutions, to guide them through the rough patches. Our team can assist in all phases of the transaction, from checking things out to the post-deal life:

• Due diligence support: We can help conduct comprehensive due diligence assessments, including evaluating policies, compliance status and incident response plans. We can also help with vendor risk management assessments to identify third-party vulnerabilities you may not be aware of.
• Integration assistance: We provide policy development, remediation efforts and security awareness training to ensure a unified cybersecurity posture.
• Ongoing support: We also provide managed services and continuous monitoring, ensuring long-term secure cybersecurity posture maintenance.

The journey from private equity due diligence to post-acquisition can be a challenging one, particularly in managing cybersecurity. But with comprehensive assessments, seamless integration and ongoing support from trusted partners, like Sikich, investors can navigate this journey successfully. Contact us today to learn how we can support your cybersecurity needs, from due diligence to integration and beyond.