Navigating Tech Risks in Modern M&A WatersNavigating Tech Risks in Modern M&A Waters
Executives must rise to the challenge and take immediate action to grasp the intricacies of data, technology, and infrastructure within M&A.
November 10, 2023
Executives operating in today's intricate business landscape must profoundly understand the multifaceted landscape of cyber, data, and technology risks. Navigating the complexities of mergers and acquisitions (M&A) demands a comprehensive grasp of these challenges, which are integral to the due diligence process.
In the realm of M&A, the term "cyber" encompasses far-reaching aspects, including fortifying digital assets against unauthorized access, data breaches, and cyberattacks. Its significance lies in its critical role during M&A due diligence, where the acquiring entity meticulously evaluates the cybersecurity posture of the target company.
While tangible and intangible assets remain vital in traditional M&A transactions, the often-underestimated risk associated with intangible assets, specifically digital assets, is glaring. These assets hold substantial value but are simultaneously susceptible to breaches and regulatory complexities.
Data, heralded as the strategic lifeblood of the digital economy, fuels decision-making, personalized customer experiences, and innovation. Nonetheless, its value is counterbalanced by its exposure to cyber threats and regulatory scrutiny. Strict adherence to data protection regulations such as the General Data Protection Regulation (GDPR), the California Privacy Rights Act (CCPA), and the Securities and Exchange Commission (SEC) is paramount.
Executives must recognize the ramifications of relying on outdated technology, making organizations more vulnerable to cyberattacks. The Equifax data breach in 2017 remains a stark reminder of this vulnerability. An unpatched software vulnerability triggered this breach involving one of the prominent credit reporting agencies. The oversight permitted hackers to gain illicit access, compromising sensitive personal and financial data belonging to approximately 147 million consumers. The Equifax incident underscores the perils of using outdated technology and insufficient security protocols, culminating in severe financial losses and reputational harm.
What Magnifies Risk?
Managing the intricacies of shadow data and contractual obligations further magnifies these risks. For instance, envision a healthcare entity adopting diverse cloud-based collaboration tools to streamline internal communication. While enhancing productivity, these tools inadvertently pave the way for storing sensitive patient data outside official management systems. Mishandling and insufficient security could transform this shadow data into a liability in a data breach.
Collaboration with third-party vendors and partners brings its own set of risks. Failure to ensure stringent security standards and data protection measures can culminate in breaches affecting both parties. Consider a scenario where lax security practices within a retail company's payment processing partner led to a breach, jeopardizing customer payment data and incurring legal and reputational repercussions for both entities.
The ever-evolving landscape of cyber threats accentuates the need for constant vigilance. Novel attack vectors like advanced phishing techniques and diverse ransomware strains necessitate continually adapting cybersecurity strategies. The swift proliferation of remote work during the COVID-19 pandemic demonstrated how home networks and personal devices could serve as entry points for cyberattacks on corporate systems. Staying informed about these evolving threats empowers executives to adjust cybersecurity measures and thwart potential breaches proactively.
Grasping cyber-risks demands substantial expertise, technology, and continuous learning investments. This encompasses recruiting skilled professionals, adopting cutting-edge tools, and complying with ever-evolving regulations. Evaluating third-party assessments and opportunity costs becomes equally critical.
In the context of M&A, data risks span data loss and regulatory consequences, often resulting in fines and legal disputes. The labyrinthine legal landscape adds complexity to this mix. Reputation and intellectual property (IP) risks emerge from cultural disparities and mismanagement, highlighting the importance of safeguarding IP assets.
Striking a balance between technology and data risks in M&A entails strategically evaluating integration and replacement strategies. A meticulous approach necessitates thorough risk assessment, vigilant monitoring, and proactive risk mitigation. Recognizing the dual nature of data's value and risks and the integral role of technology and infrastructure forms the bedrock of successful contemporary M&A endeavors.
The urgency is apparent: Executives must rise to the challenge and take immediate action to grasp the intricacies of data, technology, and infrastructure within M&A. Cybersecurity, compliance, and risk management are not optional components but imperatives for a prosperous future.
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