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Cyber Due Diligence in the M&A Process
Why Cybersecurity in Mergers and Acquisitions Can be a Dealmaker – or a Deal Breaker
It’s not uncommon for companies that are approaching a merger or acquisition process to focus on financials, company culture, and operational structure, casting cyber due diligence to the wayside.
If cybersecurity isn’t a key component in a company’s M&A process, it needs to be. Today’s threat landscape demands it. Overlooking cybersecurity can unravel even the most promising deal, and cybersecurity gaps – especially those buried or hidden in legacy systems – present significant risks that threaten the entire value of an M&A transaction.
Cyber Due Diligence Needs to be Done Up Front
Often, cybersecurity is considered too late in the deal lifecycle, despite its importance to the overall success of the transaction. But companies rightly focus most on financials and operational strategy as combining these elements can be complex and tenuous depending on the nature of the M&A transaction.
As fusing company cultures demonstrates, however, mergers and acquisitions are more than just financial transactions. They involve people – and they involve all the technology and assets, even those that are legacy or completely unknown.
Integrating technologies means integrating risk, and whether your company is being acquired or is acquiring, no one wants to inherit security vulnerabilities that could compromise your own data. Attackers look for newly-connected environments to compromise, and existing vulnerabilities create clear pathways to exploit.
What’s at Risk in an Insecure M&A Transaction?
When two companies merge, networks, policies, technologies, and operations become interoperable. If even one side is operating on outdated or insecure infrastructure, it can introduce systemic vulnerabilities across the new combined organization.
In OT environments, these vulnerabilities are a real concern. Many OT assets are legacy technologies that no longer accept security patches or necessary updates. In some cases, there are SCADA and other OT systems in operation that aren’t being monitored at all. It’s not uncommon to uncover compromised systems in an OT environment simply because they haven’t been secure for years.
During a recent engagement in which we were assessing the network security of two major utility companies that were undergoing an M&A event, we uncovered significant vulnerabilities that would have put the company being acquired at risk.
The acquiring company was operating a number of outdated systems and insecure architectures within the environment. We often expect to find security concerns during these assessments given that utility companies historically rely on legacy systems and lag on upgrades and security updates. However, this engagement unearthed more than a “lag”.
There were significant cybersecurity vulnerabilities in the IT and OT environments of the acquiring company reaching such a magnitude that it was the opinion of one of our consultants that we may have uncovered an attacker on the network if we’d spent more time investigating their network environment. If an attacker had been present, they could have taken down critical operations within hours – and it’s likely no one would have noticed in time to stop it.
In this engagement, the company being acquired would have been inheriting this highly insecure OT environment had it not been for both companies’ cyber due diligence.
Cybersecurity risks in a merger or acquisition event aren’t theoretical and can break even the best deals. Just like a home inspection, it’s always best practice to understand the environment you’re integrating into before you finalize anything.
M&A Risk is About More Than Compliance
Even companies in highly regulated industries can fall into the trap of treating compliance as a checkbox instead of a foundation. For companies in the energy and utilities sectors, standards such as NERC CIP or FERC offer necessary guidance, but they aren’t enough to capture the full risk picture, especially when integrating multiple environments.
That’s why frameworks like the NIST Cybersecurity Framework (CSF) are increasingly used during the M&A process. They offer a broader view of cybersecurity maturity and gaps, including controls, monitoring, response, and recovery capabilities.
There are some common security gaps often uncovered during a merger and acquisition that can be more easily identified by following the NIST CSF:
- Legacy or “hyperlegacy” assets: Systems and hardware that are decades old and no longer supported by vendors, lacking even basic patching or backups.
- Lack of a security operations center (SOC): Without centralized monitoring and alerting, attackers can dwell on the network undetected for extended periods.
- Unsegmented IT/OT environments: In critical infrastructure or manufacturing sectors, this is especially risky. Flat networks make lateral movement easy for attackers.
- Shared passwords and insecure protocols: Common credentials across systems, weak encryption, and poor identity access management are all common finds.
- Missing or outdated documentation: If no one knows what policies exist, or if they’re not followed, they’re not useful.
The Importance of Security Roadmapping
Cyber due diligence shouldn’t end with discovery. A well-run M&A cybersecurity assessment includes a roadmap for remediation – in short, a plan that prioritizes issues and recommends short-, medium-, and long-term actions. This roadmap might include:
- Immediate patching and asset hardening
- Hardware upgrades for critical systems
- Documentation and policy refreshes
- SOC implementation or improvement
- Stronger segmentation between IT and OT systems
- Defined roles and response processes across the organization
The roadmap should align with business goals, budgets, and staffing needs. Importantly, it also helps leadership on both sides of the M&A transaction understand what the future state of security for both companies should look like, and how to get there.
Set a Security Standard Using the Most Mature Company
There tends to be one company involved in a merger or acquisition that has a more mature security program. As part of the transaction, that company’s maturity should be used as a model. Instead of averaging down, the less secure companies should be brought up to meet that standard, which may mean adopting the other company’s SOC processes, tech stack, or incident response playbooks. It’s also crucial to approach this transition in a fair way. Companies are not intentionally risky, and assigning blame around a lack of cybersecurity maturing will add tension to an already typically tense process. Security leaders should act as neutral problem-solvers, facilitating open conversations across teams and helping leadership align on security priorities.
Create a “Do Not Connect” List Based on Asset Security
Some environments are too risky to integrate immediately. For example, legacy or outdated assets need to be decommissioned and replaced – not brought back online in a new environment. Security professionals should maintain a clear list of red flags that trigger a “do not connect” recommendation until these remediations are complete.
Security leaders should consider red flags to include:
- Unsupported or unpatched systems
- Lack of backups or disaster recovery
- Open remote access paths without proper controls
- End-of-life devices with insecure protocols
If vulnerable, high-risk systems are connected to the larger integrated network before critical security issues are resolved, it’s an invitation for attackers to strike. And if those systems have already been compromised prior to the integration, both companies are now compromised – not just one.
Cybersecurity as a Strategy for Growth After an M&A Event
Companies undergoing an M&A process do so primarily for growth and scalability. If cybersecurity is deprioritized, it can threaten those goals. The cost of remediation after a breach or incident – especially in the wake of a rushed integration – can easily outweigh the value of the deal.
By embedding cybersecurity assessments early and often in the M&A process, organizations can avoid introducing hidden vulnerabilities and build a more resilient and secure business right from the start.
Additionally, companies can execute a more friction-free transaction that doesn’t involve finger-pointing about cybersecurity vulnerabilities, ultimately instilling greater confidence in stakeholders, investors, or customers.
Handled smartly, cyber due diligence during M&A isn’t just about avoiding the worst-case scenario. Sometimes, assessing cybersecurity postures identifies a strong environment on both sides and immediately lays a groundwork for a secure transaction.
When approached proactively, cybersecurity can become a strategic differentiator – not just a liability to manage. The organizations that recognize cyber due diligence as an opportunity will be the ones that thrive long after the deal is signed.
Contact Us Today!
Identifying cybersecurity gaps is just the beginning — it’s what we do next that sets us apart. Whether you’re leading a merger, acquisition, or strategic growth initiative, our team moves quickly to uncover hidden vulnerabilities in IT, OT, and cloud environments and then builds a prioritized roadmap to mitigate risk, ensure compliance, and protect your business long after the deal is signed.
Visit directdefense.com or call 1 888 720 4633 to get started.
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